What Is Debt-To-Income Ratio?
In addition to your credit score, your debt-to-income ratio (DTI) is an important piece of your overall financial health. More specifically, DTI is a personal finance measure that compares your debt payments to your gross monthly income. When figuring out how much you may qualify to borrow, brokers factor in the total percentage of income that is paid toward debt every month.
How Do I Calculate My DTI?
Monthly Expenses / Pre-Tax Income = DTI
1. Add up your monthly payments
Examples of monthly bills may include:
Rent or mortgage
Loans (student, auto, etc.)
Child support or alimony
Credit cards (use monthly minimum payment)
2. Divide your monthly payments by your monthly gross income
Your monthly gross income is the amount of pre-tax income you earn each month.
3. Evaluate the results
The calculation will yield a decimal - you can multiply by 100 to get your DTI percentage. In general, the lower your DTI the less "risky" you are to lenders. The maximum DTI varies depending on the type of mortgage you are applying for.
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