Debt-to-income ratio (DTI)
Total monthly debt payments divided by gross monthly income. Lenders use it to decide whether you can afford more borrowing.
Debt-to-income ratio (DTI) is monthly debt payments ÷ gross monthly income. If you owe $1,800 a month across all debt (mortgage, car loan, credit card minimums, student loans) and earn $6,000 gross, your DTI is 30%.
Lenders use DTI heavily, especially mortgage lenders. Common thresholds:
- Under 36% — generally seen as healthy, low risk
- 36–43% — borderline; mortgage lenders may still approve but with stricter terms
- Over 43% — most mortgage programmes won't approve at this level
DTI is one of the two big variables in mortgage approval (credit score is the other). Two applicants with identical credit scores but different DTIs will get different offers — the lower DTI wins almost every time.
If you're planning a major loan in the next 12-24 months (mortgage, refinance), the highest-leverage thing you can do is pay down small revolving debts (credit cards, personal loans) to drop your DTI. Even paying off a $200/mo loan changes the ratio meaningfully.
See also
- Credit score — A three-digit number (usually 300–850) lenders use to estimate how likely you are to repay borrowed money on time.
- Debt snowball method — Pay off your smallest debt first regardless of interest rate, then roll its payment into the next-smallest. Optimised for motivation.
- Debt avalanche method — Pay off your highest-interest-rate debt first regardless of balance. Mathematically optimal for minimising total interest paid.
- Refinancing — Replacing an existing loan with a new one — usually to lower the interest rate, change the term, or change the monthly payment.
Ask Cashowa about debt-to-income ratio (dti)
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