A debt-to-income (DTI) ratio is the percentage of a person\u2019s monthly gross income that is dedicated towards paying back debts. Your DTI ratio is an important piece of data that will help lenders determine the likelihood that you\u2019ll repay a loan.<\/p>\n\n\n\n\n\n\n\n
Your DTI ratio can be calculated by adding up all of your regular monthly debt payments (student loans, credit card payments, mortgage, car loans, etc.) and dividing it by the amount of money you make every month (primary job, spouse\u2019s monthly income, and money generated from second jobs or side gigs). <\/p>\n\n\n\n
Total Regular Monthly Debt Payments \u00f7 Gross Monthly Income = <\/strong><\/p>\n\n\n\n Debt-to-Income Ratio<\/strong><\/p>\n\n\n\n There are also two common DTI variations that lenders may examine before offering an individual a mortgage or a line of credit:<\/p>\n\n\n\n When referring to front-end and back-end DTIs, lenders will notate the two numbers in a pair. For example, if they require a front end DTI of 28 and a back-end DTI of 35 for a borrower to qualify for a loan, this will be written as 28\/35.<\/p>\n\n\n\n When it comes to DTI ratios, lower is considered better (with ratios 20% and lower being considered excellent). For example, if your DTI ratio is 17%, this means that only 17% of your gross monthly income is being put towards existing debt payments and a portion of the other 83% can be dedicated towards paying back a new loan or mortgage. <\/p>\n\n\n\n Generally, if you have a higher DTI ratio, you may be considered a riskier borrower. An individual who has a DTI of 55% has less remaining monthly income to work with, which could mean trouble if an emergency expense is thrown into the mix on top of their monthly payments.<\/p>\n\n\n\n If you\u2019re hoping to qualify for a mortgage, your DTI should be no higher than 43%. For general borrowing purposes, most lenders prefer debt-to-income ratios that are lower than 36% and front-end DTIs that are no higher than 28%. <\/p>\n\n\n\n If your DTI is too high, there are a few steps you can take to improve it, including the following:<\/p>\n\n\n\n It\u2019s important to remember that your debt-to-income ratio isn\u2019t the only information that lenders use to evaluate your creditworthiness – your credit history and credit score will also be taken into account. Still, calculating your DTI can give you a better sense of your overall financial health, and taking the steps to improve it can help you secure future loans.<\/p>\n","protected":false},"excerpt":{"rendered":" A debt-to-income (DTI) ratio is the percentage of a person\u2019s monthly gross income that is dedicated towards paying back debts. Your DTI ratio is an important piece of data that will help lenders determine the likelihood that you\u2019ll repay a loan.<\/p>\n","protected":false},"author":3,"featured_media":507,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_kad_blocks_custom_css":"","_kad_blocks_head_custom_js":"","_kad_blocks_body_custom_js":"","_kad_blocks_footer_custom_js":"","footnotes":""},"categories":[48],"tags":[],"class_list":["post-506","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-debt"],"accredited":{"author":{"name":"Mikaela Sullivan","url":"https:\/\/www.accrediteddebtrelief.com\/blog\/author\/msullivan\/"},"categories":[{"name":"Debt","slug":"debt","url":"https:\/\/www.accrediteddebtrelief.com\/blog\/category\/debt\/"}],"thumbnail":"https:\/\/www.accrediteddebtrelief.com\/blog\/wp-content\/uploads\/2020\/03\/debtToIncomeRatio_p2.png"},"acf":{"edited_by":"","reviewed_by":"","fact_checked_by":""},"yoast_head":"\n\n
What is a Good Debt-to-Income Ratio?<\/h2>\n\n\n\n
How to Lower Your DTI Ratio<\/h2>\n\n\n\n
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