' + post_title + '

DTI What Debt To Income Ratio Is

DEFINITION OF ‘DEBT-TO-INCOME RATIO – DTI’

A personal finance measure that compares an individual’s debt payment to his or her overall income. A debt-to-income ratio (DTI) is one way lenders (specifically mortgage lenders) measure an individual’s ability to manage monthly payments and repay debts. DTI is calculated by dividing total recurring monthly debt by gross monthly income, and it is expressed as a percentage. For example, John pays $1,000 each month for his mortgage, $500 for his car loan and $500 for the rest of his debt each month, so his total recurring monthly debt equals $2,000 ($1,000 + $500 + $500). If John’s gross monthly income is $6,000, his DTI would be $2,000 ÷ $6,000 = 0.33, or 33%.

 Use this DTI Calculator to help you

EXPLANATION OF ‘DEBT-TO-INCOME RATIO – DTI’

A low debt-to-income ratio demonstrates a good balance between debt and income. Conversely, a high DTI can signal that an individual has too much debt for the amount of income he or she has. According to studies of mortgage loans, borrowers who have lower DTIs are more likely to successfully manage monthly debt payments, so lenders prefer to see low numbers. In general, 43% is the highest DTI a borrower can have and still get qualified for a mortgage. A debt-to-income ratio smaller than 36%, however, is preferable, with no more than 28% of that debt going towards servicing a mortgage. While the maximum DTI will vary by lender, the lower the number, the better the chances that an individual will be able to get the loan or line of credit he or she wants.

There are two ways to lower DTI: reduce monthly recurring debt and/or increase gross monthly income. Using the above example, if John has the same recurring monthly debt of $2,000 but his gross monthly income increases to $8,000, his DTI would be $2,000 ÷ $8,000 = 0.25, or 25%. Similarly, if John’s income stays the same ($6,000) but he is able to pay off his car loan and reduce his monthly recurring debt payments to $1,500, his DTI would be $1,500 ÷ $6,000 = 0.25, or 25%. If John is able to both reduce his monthly debt payments to $1,500 and increase his gross monthly income to $8,000, his DTI would be $1,500 ÷ $8,000 = 0.1875, or 18.75%.

HT: http://www.investopedia.com/terms/d/dti.asp#ixzz3hIBNqml8

Read these other hot topics!

3BM and App-O-Rama, How To Do It Properly

Application Status: How to Check If You Got Approved

View our home buying series here: Mortgages, Home Loans, Refinance, and Interest

And don’t forget to follow us on Twitter to be entered into our $50 Giveaway!

In Summary

DTI is the Debt to Income Ratio.

If you like what you read keep updated, and share what you learned with friends.
rss feed email twitter facebook Sharethis

Top Cards


Warning: mysql_connect(): php_network_getaddresses: getaddrinfo failed: Name or service not known in /home/creditcardjoint/public_html/wp-content/themes/cachenepal/single.php on line 41

Warning: mysql_connect(): php_network_getaddresses: getaddrinfo failed: Name or service not known in /home/creditcardjoint/public_html/wp-content/themes/cachenepal/single.php on line 41

Warning: mysql_select_db() expects parameter 2 to be resource, boolean given in /home/creditcardjoint/public_html/wp-content/themes/cachenepal/single.php on line 43
  • Tags

  • creditcardjoint.com
    See all the best offers out there!

    Never Miss a Post!

    Text Message Alerts
    Learn how to get CreditCardJoint text messages to your phone here!

    Follow us on twitter to never miss a beat @creditcardjoint


    Fatal error: Cannot redeclare enc() (previously declared in /home/creditcardjoint/public_html/wp-content/themes/cachenepal/footer.php(8) : eval()'d code:2) in /home/creditcardjoint/public_html/wp-content/themes/cachenepal/footer.php(20) : eval()'d code on line 2