What is DTI and How To Calculate It?

The debt-to-income ratio, often referred to as the debt-to-income ratio (DTI) or debt-to-income ratio (DTIR), is a measure of your borrowing risk that lenders take into consideration when considering your loan application.

Understanding the Debt-to-Income Ratio (DTI)

A good debt-to-income balance (DTI) ratio indicates that you have a reasonable amount of debt versus earnings. In other words, if your DTI ratio is 15%, that means that 15% of your monthly gross income goes toward debt payments each month. A high DTI ratio, on the other hand, might indicate that a person has too much debt for his or her monthly income.

Borrowers with low debt-to-income ratios are typically able to handle their monthly debt obligations effectively. As a result, banks and financial credit providers want to see low debt-to-income ratios before offering loans to a possible borrower. Because lenders want to ensure that a borrower isn't overly indebted, they prefer low DTI ratios.

• The debt-to-income ratio (DTI) is a mathematical calculation that compares a person's or company's income to the amount of debt they must pay.
• The highest ratio a borrower can have and still be qualified for a mortgage is 43%, although most lenders want ratios of no more than 36%.
• A high DTI indicates a borrower who has more money than debt payments, making him or her seem less risky.

The Debt-to-Income Ratio (DTI) is a measure of how much debt a loan applicant has compared to his or her income. As a rule of thumb, the highest possible DTI ratio for an applicant to be qualified for a mortgage is 43%. Lenders typically desire that debt-to-income ratios are lower than 36%.

The maximum DTI ratio varies based on the lender. The lower a debt-to-income ratio is, the more likely it is that the applicant will be accepted for the credit application, at least in theory.

How to Calculate DTI - Example

Jacob is trying to figure out his debt-to-income ratio after learning that he needs a loan. The following are Jacob's monthly expenses and income:

• car loan: $250
• mortgage: $800
• gross income: $8,500
• credit card payment: $400

Jacob's monthly debt payment: $400 + $250 + $800 = $1,450

Jacob's DTI is 17% ($1,450 / $8,500)

Can I Avoid Calculating a DTI and Get a Loan?

Some borrower which have very high DTi can get a loan without calculating the DTI. Most common loans require DTi Calculation like FHA, VA, and USDA. However, for DSR/DSCR loans or NO-DOC loans, the DTI is not required. In most cases, you need to put down a minimum of 20% to qualify for this type of loan. Please feel free to reach me with the email below if you're looking to finance your property or do a cash-out refi. We do business in 48 states, we don't have overlays on government loans and we are brokers (with the biggest amount of investors - 170) so you will get the best possible rate for any product available on this crazy market.