What is a debt-to-income ratio?

DTI (debt-to-income) ratio is a financial measure that compares a person's monthly housing costs and debt payments to their monthly gross income. It is used to assess a borrower's ability to repay a loan. Lenders typically use a DTI ratio of 43% or lower as a general guideline for determining a borrower's ability to repay a loan. This ratio can be higher based on loan products and borrower circumstances. A higher DTI ratio may indicate that a borrower is overextended and may have difficulty repaying the loan.

If you are renting a property and the rent will end after purchasing a home, the current rent payment is excluded and the new mortgage payment is included in the ratio instead. If you currently own a home that you plan to sell but has not sold by the time you close on your new home loan, then the costs of owning that home, including taxes, insurance, and any association dues, will be included in the debt-to-income ratio.

Learn more about debt-to-income (DTI) ratio and how to calculate DTI here.