What is a Debt-to-Income (DTI) Ratio?

Simplistically, your debt-to-income ratio (DTI) is all your monthly debt payments divided by your gross monthly income. This number is one of the key considerations in determining how much of a mortgage you can qualify for. It is a measure of your capacity to repay the money you intend to borrow.

Debt payments can include car loans, credit cards, student loans (including deferred), and lines of credit or other installment debt. It is important to note that mortgage lenders look at the monthly payment obligations on the debt, not the total amount owed.  Gross income is the amount of money you earn not your take-home pay (after taxes and other deductions).  

For example, if your monthly payments are $400 for an auto loan, $200 on student loans, and $200 minimum required minimum on a couple of credit cards: your monthly obligations total $800 per month. If your gross monthly income is $6,000, then your current debt-to-income ratio is 13 percent (800/6,000). The maximum DTI ratio that loan programs allow can vary but they typically range from 43-50%. In this example, this borrower could qualify for a total mortgage payment (principle, interest, taxes, insurance, and HOAs) in the range of $1,780 to $2,200 (6,000 x 43% = 2,580 – 800 = $1,780 and 6,000 x 50% = 3,000 – 800 = $2,200).