EyeOnWhat it means
To work out DTI, add up the monthly payments on debts such as loans, cards and a mortgage or rent, then divide by your gross monthly income. If you pay 900 a month on debts and earn 3,000 before tax, DTI is 900 / 3,000 = 30%.
Lenders, particularly mortgage lenders, often use DTI or similar affordability measures to judge whether additional borrowing is manageable.
How it works
Different lenders include different items and use different limits, so there is no universal threshold. Some count only debt payments; others add living costs, childcare, or other commitments in a fuller affordability assessment.
DTI is a simple snapshot. It does not include savings, spending habits, or how stable the income is.
A simple example
Using the figures above, if monthly debt payments fell from 900 to 600 after clearing a loan, DTI would drop from 30% to 20% at the same income. If income rose to 3,600 while payments stayed at 900, DTI would be 25%. These are illustrations of how the ratio moves and not targets.
Things worth checking
- Check whether a lender uses gross or net income, as the percentage will differ.
- Your own sense of what is comfortable matters as much as a lender's cut-off.
- Variable income can make a single month's ratio misleading.
- DTI is not usually shown on a credit report; you calculate it yourself.
How it varies by country
Maximum ratios, what counts as income or debt, and whether DTI is used at all differ by country, lender and product.