What Is a Debt-to-Income Ratio? A Complete Guide

Your debt-to-income (DTI) ratio is one of the most critical numbers in personal finance. It measures the percentage of your gross monthly income that goes toward paying your monthly debt obligations. Lenders use it to evaluate your ability to manage monthly payments and repay borrowed money.

How to Calculate Your DTI Ratio

The formula is straightforward:

DTI Ratio = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100

For example, if you pay $2,000 per month in debts and earn $6,000 gross per month:

$2,000 ÷ $6,000 = 0.333 × 100 = 33.3% DTI

What Counts as Debt?

When calculating DTI, include these monthly payments:

• Mortgage or rent payments (including property taxes and insurance if escrowed)
• Car loan or lease payments
• Student loan payments (minimum required payment)
• Credit card minimum payments
• Personal loan payments
• Child support or alimony
• Any other recurring debt obligations

What Does NOT Count as Debt?

• Utilities (electricity, gas, water)
• Groceries and food
• Health, auto, or life insurance premiums
• Cell phone and internet bills
• Subscriptions and memberships
• Income taxes

What Is a Good DTI Ratio?

DTI ratios are generally evaluated on this scale:

• 35% or less: Excellent. You have manageable debt relative to your income. Lenders view you as a low-risk borrower.
• 36% to 43%: Acceptable. You have a reasonable amount of debt, but there's room for improvement. Most conventional loans are available.
• 44% to 50%: High. You may struggle to qualify for conventional loans, but FHA and some other programs remain options.
• Over 50%: Very high. Most lenders will be reluctant to extend credit. Focus on debt reduction.

Why Lenders Care About DTI

Your DTI ratio tells lenders how much financial breathing room you have. A borrower with a low DTI is more likely to make consistent, on-time payments because a smaller portion of their income is already committed to debt. High DTI borrowers pose greater default risk because unexpected expenses or income disruptions leave less margin.

Research from the Consumer Financial Protection Bureau (CFPB) shows that borrowers with DTIs above 43% have significantly higher default rates on mortgages, which is why the Qualified Mortgage (QM) rule originally used 43% as a key threshold.

DTI vs. Credit Score

Your DTI and credit score are both important but measure different things. Your credit score reflects your history of managing credit — payment timeliness, account age, and utilization. Your DTI measures your current capacity to take on new debt. A person can have an excellent credit score but a high DTI if they recently took on significant new obligations.

Lenders typically evaluate both metrics together. A strong credit score with a low DTI gives you the best loan terms and rates available.