Explaining Your DTI Ratio

If you’ve recently applied for a loan, the term “debt-to-income” ratio (DTI) has probably been caught by your ear. In this article, we’ll break down exactly what the term mean and why it’s so important to creditors.

DTI Explained

Simply put, your debt-to-income ratio is all of your monthly debt payments divided by your gross monthly income – how much you make before taxes and other deductions. Here’s an example of how it shakes out. Let’s say that every month if you pay $900 for your mortgage, $200 on an auto loan and $300 on other debts, your monthly payments for debt are $1,400. If your monthly gross income is $5,000 then your debt-to-income ratio is 28% ($1,400 is 28% of $5,000).

Low is Good

In the eyes of most creditors, the lower your DTI, the better. That’s because studies show that people with lower DTIs are maintaining a good balance between their debt and income.

What DTI is Too High?

Typically, a DTI of 40% or more is a signal to creditors that you’re in financial stress. As for what DTI is too high and would prevent you from qualifying for a loan, that varies from one creditor to the next as they set their own DTI requirements. For example, it should be fairly easy to find a creditor willing to lend money to people with DTI ratios of 50% or more.

If Your DTI is Too High and You’re Looking for Solution, Call The Oswalt Law Group

The skilled team here at The Oswalt Law Group is comprised of compassionate experts who can help you regain control of your finances. You can schedule a free consultation with The Oswalt Law Group by calling 602-225-2222.