Debt-to-Income Ratio (DTI)
The percentage of gross monthly income that goes toward paying monthly debt obligations.
Definition
The debt-to-income ratio (DTI) is a personal finance measure that compares an individual's total monthly debt payments to their gross monthly income. It is calculated by dividing total monthly debt payments by gross monthly income and multiplying by 100. For example, if you pay $2,000/month in debts and earn $6,000/month, your DTI is 33%. Lenders use DTI to assess borrowing risk — most mortgage lenders prefer a DTI below 36%, with no more than 28% going toward housing costs (the "28/36 rule"). FHA loans may allow DTI up to 43%. A lower DTI indicates better financial health and increases your chances of loan approval at favorable rates.
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