Your credit score isn’t the only financial factor that matters when applying for a mortgage. Your debt to income
ratio, or DTI, is an important indicator of your financial situation. Lenders use DTI – with other financial facts –
to determine whether you’re a safe investment for a loan.  

Whether you’re planning to buy a home or just want a clearer idea of your finances, learning more about DTI will help
you understand the big picture.

What is DTI? 

Your DTI is a comparison of your current debts compared to your gross monthly income. Since this information isn’t
included in your credit report, it’s a valuable piece of insight into your day-to-day finances. It tells your lender
how much you can reasonably afford to pay every month while considering your other financial responsibilities. 

A higher DTI can mean higher interest rates, higher down payments or even lack of approval for a loan. Even if you
have a high credit score, your debt-to-income ratio could affect these things. 

How to calculate DTI

There are plenty of free online tools you can use to calculate your DTI. Your bank or credit union may even provide
their own tools to help you figure out the ratio. Otherwise, you can use a simple formula to do the math yourself.

Recurring monthly debt / Gross monthly income = Debt-to-income ratio 

Simply multiply the answer by 100 to get a percentage rate, and you’ll get a clearer picture of your current
financial situation. 

What is a good debt-to-income ratio?

When it comes to debt-to-income ratio, lower is always better. Most lending institutions consider a DTI of 30% or
below to be ideal – and some may not even consider you for approval with anything higher than 30%.  

Different mortgage types and providers have different requirements, so it’s important to check into the details of
your particular loan. If there are adjustments you need to make to your finances, such as paying off credit cards or
consolidating debt, your DTI will show you.