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DTI
(Debt-to-Income Ratio)
DTI (Debt-to-Income Ratio) compares monthly debt payments (e.g., mortgage, student loans) to gross monthly income, expressed as a percentage. Lenders use it to assess borrowing risk.
A 20% DTI means 20% of income goes toward debt. Most mortgages require DTIs below 43%, per CFPB guidelines. Lower DTIs improve loan approval odds and terms. For example, a borrower earning $5,000/month with $1,500 in debt payments has a 30% DTI. Reducing DTI involves increasing income (e.g., side hustles) or paying down debt (e.g., via the YNAB method). High DTIs correlate with financial stress and default risk.
A 20% DTI means 20% of income goes toward debt. Most mortgages require DTIs below 43%, per CFPB guidelines. Lower DTIs improve loan approval odds and terms. For example, a borrower earning $5,000/month with $1,500 in debt payments has a 30% DTI. Reducing DTI involves increasing income (e.g., side hustles) or paying down debt (e.g., via the YNAB method). High DTIs correlate with financial stress and default risk.