Your DTI (debt-to-income), known as “Debt-to-income ratio” is a valuable number. Even as important as your Credit Score. And, it is exactly as it sounds, the amount of debt you have as compared to your overall income.
Although you are renting, it is important to know and keep your DTI at a good percentage. Eventually when you are ready to buy a home, Mortgage Lenders will look at this ratio when deciding whether to lend you money or the extent of credit they are willing to give you. A low DTI shows you have a good balance between debt and income. As you might guess, lenders like this number to be low — generally you’ll want to keep it below 36, but the lower it is, the greater the chance you will be able to get the loans or line of credit you seek.
The formula: Total recurring debt divided by gross income.
Total recurring debt: the amount required to make a payment for a loan or other obligation on a continuing basis. The debtor cannot easily cancel recurring debt. Some familiar examples include: credit card debt, mortgages, car loans, alimony and child support.
Gross income (“pay”): an individual’s income and receipts from nearly all sources. It is the starting point for determining the taxes that individual will pay. Sources of gross income or pay include salary, wages, tips, capital gains, dividends, interest, rents, pensions and alimony.
What Does My DTI Ratio Mean to Lenders?