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Debt-to-Income Ratio (DTI)
Definition
The debt-to-income ratio compares your monthly debt payments to your gross monthly income, used by lenders to assess borrowing capacity.
Explanation
DTI is calculated by dividing total monthly debt payments by gross monthly income. Lenders use DTI to evaluate mortgage and loan applications. A DTI below 36% is generally considered good; above 43% makes it difficult to qualify for mortgages.
DTI includes housing payments, car loans, student loans, credit card minimum payments, and other recurring debts. It does not include utilities, insurance, or living expenses.
Example
If your monthly debts total $1,500 and your gross monthly income is $5,000, your DTI is 30% ($1,500 / $5,000), which is within acceptable lending range.