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 and is the #1 metric lenders use to assess risk.
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. You'll get the best rates.
- 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 (Qualified Mortgage rule).
- Over 50%: Danger zone. Most lenders will decline your application outright.
How to Improve Your DTI
- Pay down existing debt (focus on the highest-payment debts first)
- Increase your income (side hustle, raise, overtime)
- Avoid new debt before applying for a major loan
- Refinance existing loans to lower monthly payments
Need help calculating payments? Use our loan calculator to see exactly what a new loan would add to your monthly obligations.