What is debt-to-income ratio (DTI)?

Debt-to-income ratio compares a borrower's recurring monthly debt obligations with gross monthly income before taxes. Obligations typically include the proposed loan payment, housing costs, auto and student loan payments, minimum credit card payments and other installment debts. In mortgage lending, a front-end ratio covers housing costs alone and a back-end ratio covers all debts.

DTI is a core measure of ability to repay in consumer lending. Lenders set maximum DTI levels by product and credit tier, and higher DTI generally allows less room to absorb income disruptions. For residential mortgages, federal ability-to-repay rules require creditors to consider DTI or residual income, and loan programs set their own maximums.

DTI depends on accurate income and debt figures. Stated or unverified income, missing obligations not reported to credit bureaus, and inconsistent treatment of variable or self-employment income can all distort the ratio. Using minimum card payments understates obligations for borrowers carrying large revolving balances. DTI does not capture living costs, which is why some lenders also look at residual income.