Debt-to-Income Ratio
The percentage of your gross monthly income that goes toward debt payments, used by lenders to assess borrowing capacity.
The debt-to-income (DTI) ratio is one of the most important metrics lenders use to evaluate loan applications. It's calculated by dividing your total monthly debt payments (mortgage, car loans, student loans, credit card minimums) by your gross monthly income. Most lenders want DTI below 36%, with no more than 28% going to housing costs. A high DTI signals financial stress and limits your ability to take on new debt, even with a high income. Lowering your DTI can be achieved by paying down debt, increasing income, or both. This ratio is especially critical when applying for mortgages.
Example
Monthly income: $7,000. Debt payments: $1,500 mortgage + $400 car loan + $200 student loan = $2,100. DTI = $2,100 / $7,000 = 30%.
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Related terms
Mortgage
A long-term loan secured by real property, used to finance the purchase of a home or investment property, typically repaid over 15–30 years.
Financial Health Score
A composite metric that evaluates your overall financial well-being based on multiple factors like savings rate, debt levels, emergency fund, and spending habits.
LTV (Loan-to-Value Ratio)
The ratio of the loan amount to the appraised value of the property, expressed as a percentage. Lower LTV means less risk for the lender.
Cash Flow
The net amount of money moving in and out of your accounts over a given period — positive when income exceeds expenses, negative when it doesn't.
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APR (Annual Percentage Rate)
The annualized cost of borrowing expressed as a percentage, including interest and mandatory fees, used to compare loan products.
Overdraft
A credit facility that lets you spend more than your account balance, up to an agreed limit, for a fee or interest.
Creditworthiness
A lender's assessment of how likely you are to repay borrowed money, based on income, debts, and payment history.
Debt Consolidation
Combining several debts into a single loan, ideally with a lower interest rate and one monthly payment.
Revolving Credit
A flexible credit line, like a credit card, that you can repeatedly borrow from and repay up to a set limit.
Wage Garnishment (Attachment of Earnings)
A legal process where part of your salary is withheld to repay a debt, leaving a protected minimum.