Debt-to-income ratio (DTI)
The share of gross monthly income that goes to required debt payments, used by lenders to judge whether a borrower can take on more.
What it means
DTI compares monthly debt payments, such as housing, car, student loan, minimum credit card and personal loan payments, with income before taxes. Mortgage lenders often look at two versions: front-end DTI counts only housing costs, while back-end DTI counts all monthly debt payments including housing.
A lower DTI suggests more room in the budget and usually makes approval easier. Each lender and loan program sets its own maximum, and some allow higher ratios with strong credit or savings. Everyday expenses like groceries and utilities are not counted, so DTI can understate how tight a budget really is.
Formula
DTI = total monthly debt payments ÷ gross monthly income × 100
- total monthly debt payments = required payments on all debts
- gross monthly income = income before taxes and deductions
Example
Suppose someone earns $6,000 a month before taxes and pays $1,500 for a mortgage, $350 for a car and $150 in card minimums. Back-end DTI is $2,000 ÷ $6,000, about 33%; front-end DTI is $1,500 ÷ $6,000, or 25%.
How it’s used
- Mortgage and loan underwriting
- Judging how much new debt is affordable
- Tracking progress while paying down debt
Related terms
Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.