Debt-to-Income Ratio (DTI)
The debt-to-income ratio (DTI) is the share of your monthly income that already goes to debt payments. Divide those payments by your gross monthly income, which is your pay before taxes. Lenders look at it when you apply for a loan, including a mortgage.
A low DTI means more of your paycheck is still free, so a lender is more willing to believe you can handle a house payment and may offer you a better interest rate.
If you earn $4,000 a month and your car loan, student loan, and credit card minimums total $800, your DTI is 20%. That leaves room to buy a home. If those same debts were $2,000, your DTI would be 50%, and a mortgage would be much harder to get. A company’s debt-to-equity ratio is a different calculation.
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