{"id":2546,"date":"2018-02-16T08:34:11","date_gmt":"2018-02-16T08:34:11","guid":{"rendered":"http:\/\/www.realestatewords.com\/?page_id=2546"},"modified":"2022-05-23T13:28:34","modified_gmt":"2022-05-23T13:28:34","slug":"dti","status":"publish","type":"page","link":"https:\/\/www.realestatewords.com\/dti\/","title":{"rendered":"DTI (Debt to Income Ratio)"},"content":{"rendered":"

DTI Definition<\/h2>\n

A debt-income-ratio (DTI)<\/strong> is a ratio that shows what percentage of income is going toward the debt.<\/p>\n

Explanation<\/h2>\n

Your debt-to-income ratio (DTI) is the percentage of your monthly income that goes towards expenses e.g. rent<\/a>, mortgage<\/a>, credit cards, or other debt<\/a>.<\/p>\n

Gross monthly income is the income before tax.<\/p>\n

This ratio is an important indicator of your ability to pay the interest on the loan and still have enough income available for your basic needs.<\/p>\n

It also shows how much loan you are able to afford. By looking at your total expenses, the lender<\/a> can also gauge how responsible you are in spending your money.<\/p>\n

The ratio can be calculated as follows:<\/p>\n

    \n
  1. Sum of all of your income before taxes<\/li>\n
  2. Sum of all of your expenses<\/li>\n
  3. Calculate it by using this formula: Total Expenses \/ Total Income * 100<\/li>\n<\/ol>\n

    For example, let\u2019s say your income is $10,000 per month and the expenses are $2,000 per month. Then your DTI is $2,000\/$10,000 = 0.5 * 100 = 50%<\/p>\n

    A lower DTI is better for you as a whole from a financial management standpoint.<\/p>\n

    Being responsible by borrowing money and spending it only when needed would help you keep this ratio lower.<\/p>\n

    It helps when you really need to borrow money, let\u2019s say for a business loan or for a real estate loan.<\/p>\n

    Generally speaking, you want your DTI to be < 25%. If that is not the case, then don\u2019t panic. Create a financial plan to pay off your debt and work towards reducing your DTI.<\/p>\n

     <\/p>\n