Debt-to-Income Ratios: What They Mean for Loan Approval

Your debt ratios are an important factor in determining how much home you can buy.

When applying for a mortgage loan — lenders want to know one key thing: Can you afford to repay it? One of the most important tools they use to assess this is your Debt-to-Income Ratio, or DTI.

What Is a Debt-to-Income Ratio?

Your DTI ratio is the percentage of your gross monthly income that is being used towards your monthly debt payments. It helps lenders gauge how much of your income is already committed to existing debts and how much room you have for new obligations.

How to Calculate Your DTI

Here's the simple formula:

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

Example:

• Monthly debts:

  • Proposed Mortgage payment: $2,000

  • Car loan: $500

  • Credit card minimums: $200

  • Student loans: $150

  • Total: $2,850

    
    

• Gross monthly income: $10,000

  
  

DTI = ($2,850 ÷ $10,000) × 100 = 28.5%

What’s a Good DTI?

Lenders have varying guidelines, but in general:

• Below 36%: Ideal — you’re likely to be approved

• 36%–43%: Acceptable, especially with good credit

• 43%–50%: Riskier — might still qualify, but terms may not be favorable

• Above 50%: High risk — likely to be denied unless there are strong compensating factors

  
  

Why DTI Matters for Loan Approval

A lower DTI suggests you have a strong ability to manage monthly payments, which lowers the risk for the lender. It can also mean:

• Better interest rates

• Higher approval odds

• Larger loan amounts available

  
  

On the other hand, a high DTI might raise red flags. Even with a good credit score, a lender could see you as overextended.

Final Thoughts on DTI

Your DTI ratio is a snapshot of your financial health. Knowing and managing it can help you make smarter borrowing decisions—and improve your chances of getting approved for the loan you want.

How I Can Help You

When it comes time to purchase a home or refinance an existing loan, I want to help you! Hopefully articles like this give you good information and a better understanding of the mortgage world but let me use my experience and expertise to help you with your particular situation.

I tell my clients and referral partners that a mortgage transaction starts with a simple conversation. Let’s talk about your financial situation, budget, and goals so that I can help you determine the best solution for you. During a 10-minute informal conversation, we can get you on the right path as it relates to a home purchase or mortgage refinance.