Debt-to-income ratio (DTI)
Monthly debt payments divided by gross income - the first number lenders use to size a loan.
Monthly debt payments divided by gross income - the first number lenders use to size a loan.
DTI is a cash-flow measure: add every required monthly debt payment - rent or mortgage, car loans, student loans, minimum card payments, alimony - divide by gross monthly income, and express it as a percentage. Lenders care because a borrower can hold a perfect credit score and still lack the room to absorb another payment; back-end DTI including the new loan is the figure underwriting actually applies, while DTI excluding the new loan is the front-end variant used for mortgages.
Conventional mortgage guidelines commonly want total DTI at or below 45% with tested findings, while some personal lenders cap it at 35-40% and others will stretch further at higher rates. Lowering DTI before applying means paying balances down so required payments drop, or letting income documents catch up; the ratio moves in your favour fastest when high-minimum debts retire first. Credit card minimums are especially punishing here - a small balance can hold a large required payment.
Worked example
Gross income $7,000; existing payments total $2,000 including a proposed $1,800 mortgage. DTI is 2,000 ÷ 7,000 ≈ 28.6% - comfortably inside most mortgage boxes, while the same new payment against $4,000 of existing debts would be 95% and impossible to afford.
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