Debt to Income Ratio

The Debt-to-Income Ratio (DTI) is a crucial financial metric that assesses an individual's or household's financial health by comparing their total debt obligations to their gross income. Lenders use DTI to evaluate a borrower's ability to manage additional debt responsibly when considering loan applications. To calculate DTI, add up all monthly debt payments (such as mortgages, loans, and credit card bills) and divide this sum by your gross monthly income (pre-tax earnings). The resulting percentage represents your DTI, with a lower DTI indicating a healthier financial situation and a higher likelihood of loan approval. Lenders typically have specific DTI thresholds for various loan types, so it's essential to keep your DTI within acceptable limits to maintain financial stability and access credit when needed.