Debt-To-Income Ratio: All You Need To Know

Debt-To-Income Ratio

DTI Ratio is the proportion of the borrower's income that goes towards paying the debt. It is used by the lender to determine whether one can afford more debt before the loan is approved. 

Calculating the DTI ratio

In order to calculate the DTI ratio, one should start by calculating the monthly payments on all debts, including EMIs on credit cards auto loans, home loans and other fixed debt commitments.

Step 2

One should determine the entire monthly income before taxes, taking into account any profits from a job, rental property, or other sources. 

Step 3

One can use the formula DTI Ratio = (Total monthly debt payments ÷ Monthly income) × 100 and check the results. A lower DTI ratio means higher chances of loan approval. 

The Ideal DTI Ratio

According to experts, the DTI ratio above 50 per cent is considered to be risky. Below 20 is excellent for loan approval. 

Read more