Debt-to-Income Ratio (DTI)

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Definition of 'Debt-to-Income Ratio (DTI)'

The debt-to-income ratio (DTI) is a measure of how much debt a person has compared to their income. It is calculated by dividing a person's total monthly debt payments by their gross monthly income.

A DTI of less than 30% is considered to be good, while a DTI of 40% or more is considered to be high. A high DTI can make it difficult to qualify for a loan, and it can also lead to financial problems down the road.

There are a few different ways to calculate your DTI. One way is to add up all of your monthly debt payments, including your mortgage, car payments, student loans, credit card payments, and other debts. Then, divide that number by your gross monthly income.

Another way to calculate your DTI is to use a debt-to-income ratio calculator. These calculators are available online and can help you quickly and easily calculate your DTI.

Your DTI can be an important factor in determining your eligibility for a loan. Lenders typically want to see a DTI of less than 40% in order to approve a loan. However, some lenders may be willing to approve a loan to borrowers with a higher DTI if they have other good credit factors.

If you have a high DTI, there are a few things you can do to lower it. You can pay down your debt, increase your income, or get a loan with a lower interest rate.

Lowering your DTI can improve your chances of qualifying for a loan and can also help you save money on interest payments.

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