what is debt to income dti ratio 
debt to income dti ratio is the percentage of your monthly gross income that goes to paying your monthly debt payments and is used by lenders to determine your borrowing risk ellen lindner investopediaunderstanding debt to income dti ratioa low debt to income dti ratio demonstrates a good balance between debt and income in other words if your dti ratio is 15 this means that 15 of your monthly gross income goes to debt payments each month conversely a high dti ratio can signal that an individual has too much debt for the amount of income earned each month typically borrowers with low debt to income ratios are likely to manage their monthly debt payments effectively as a result banks and financial credit providers want to see low dti ratios before issuing loans to a potential borrower the preference for low dti ratios makes sense since lenders want to be sure a borrower isn t overextended meaning they have too many debt payments relative to their income as a general guideline 43 is the highest dti ratio that a borrower can have and still get qualified for a mortgage ideally lenders prefer a debt to income ratio lower than 36 with no more than 28 to 35 of that debt going toward servicing a mortgage payment 1the maximum dti ratio varies from lender to lender however the lower the debt to income ratio the better the chances that the borrower will be approved or at least considered for the credit application debt to income formula and calculationdebt to income dti ratio is a personal finance measure that compares an individual s monthly debt payment to their monthly gross income your gross income is your pay before taxes and other deductions are taken out the debt to income ratio is the percentage of your monthly gross income that goes to paying your monthly debt payments the dti ratio is one of the metrics that lenders including mortgage lenders use to measure an individual s ability to manage monthly payments and repay debts order your copy of investopedia s what to do with 10 000 magazine for more tips about managing debt and building credit debt to income ratio limitationsalthough important the dti ratio is only one financial ratio or metric used in making a credit decision a borrower s credit history and credit score will also weigh heavily in a decision to extend credit to a borrower a credit score is a numeric value of your ability to pay back a debt several factors impact a score negatively or positively including late payments delinquencies number of open credit accounts balances on credit cards relative to their credit limits or credit utilization the dti ratio does not distinguish between different types of debt and the cost of servicing that debt credit cards carry higher interest rates than student loans but they re lumped in together in the dti ratio calculation if you transferred your balances from your high interest rate cards to a low interest credit card your monthly payments would decrease as a result your total monthly debt payments and your dti ratio would decrease but your total debt outstanding would remain unchanged debt to income ratio is an important ratio to monitor when applying for credit but it s only one metric used by lenders in making a credit decision debt to income ratio examplejohn is looking to get a loan and is trying to figure out his debt to income ratio john s monthly bills and income are as follows john s total monthly debt payment is 2 000 john s dti ratio is 0 33 in other words john has a 33 debt to income ratio 