You might have a great credit score, but if your Debt-to-Income (DTI) ratio is too high, you will still be rejected for that mortgage or business loan. DTI measures your ability to manage monthly payments.
The Formula
(Total Monthly Debt Payments / Gross Monthly Income) x 100 = DTI %
Example:
Rent: $1,200
Car Loan: $400
Student Loan: $200
Credit Card Minimums: $100
Total Debt: $1,900
Gross Income: $5,000
1900 / 5000 = 0.38 = 38% DTI.
What is a Good DTI?
- Under 36%: Excellent. Lenders love this.
- 36% - 43%: Good. You will likely get approved, perhaps with slightly higher rates.
- Over 43%: Risky. Many mortgage lenders cannot lend to you by law above this limit.
Need help calculating payments? Use our loan calculator.