What Is Debt-to-Income Ratio (DTI) — And Why It Matters When You Apply for a Mortgage
When you’re thinking about buying a home, there are a few key numbers that come into play—and one of the most important is your Debt-to-Income Ratio, or DTI for short.
Don’t worry—this isn’t as complicated as it sounds. At Simple Loans, we’re all about keeping things simple and straightforward. So, let’s break it down.
What Exactly Is DTI?
Your Debt-to-Income Ratio is a percentage that shows how much of your monthly income goes toward paying off debts. It helps lenders understand how much room you have in your budget to take on a mortgage.
How Do You Calculate DTI?
It’s simple math:
Add up your monthly debt payments.
This includes things like:
Credit card payments
Car loans or leases
Student loans
Personal loans
Any other recurring monthly debt
Divide that number by your gross monthly income.
(Gross income = before taxes and deductions)
Multiply by 100 to get a percentage.
Example:
Let’s say your monthly debt payments add up to $2,000, and your gross income is $6,000/month.
$2,000 ÷ $6,000 = 0.33 → or 33% DTI
Why Is DTI Important?
Lenders use DTI to help decide whether you qualify for a mortgage—and how much you can afford to borrow. A lower DTI means you’re using less of your income on debt, which typically makes you a safer bet for lenders.
In most cases:
A DTI under 36% is considered good
Some loan programs may allow higher DTIs (up to 44.9% or more), especially with strong credit
How to Lower Your DTI (If You Need To)
If your DTI is too high, don’t stress—there are a few simple ways to improve it:
Pay down existing debt
Avoid taking on new loans before applying
Increase your income (even a side hustle can help!)
Let’s Keep It Simple
Not sure what your DTI is—or what it means for your mortgage plans? That’s what we’re here for.
At Simple Loans, we make financing feel less like a puzzle and more like a simple plan. Reach out anytime and we’ll walk you through the numbers, no stress, no jargon.
📲 Get in touch today and let’s make your homeownership journey simple.