Debt-to-Income Ratio Explained: What Lenders Look At

Your debt-to-income ratio (DTI) compares your monthly debt payments with your gross monthly income. Lenders use it to judge whether you can take on another payment.

The formula

DTI = total monthly debt payments ÷ gross monthly income × 100. Include rent or mortgage, car loans, student loans, minimum credit card payments and other loan payments. Do not include groceries, utilities or insurance.

Example

With $1,800 in monthly debt payments and $6,000 gross income, DTI is 30%.

What counts as good

Many lenders prefer a DTI of 36% or lower and rarely go above about 43% for standard mortgages, though some loan programs allow higher ratios. Lower is generally better for approval and rates.

How to lower it

• Pay down balances, starting with the largest monthly payments.
• Avoid new debt before applying for a loan.
• Increase income through raises or additional work.
• Refinance or consolidate to reduce monthly payments.