Know your debt-to-income ratio

The number every lender looks at

Debt-to-income (DTI) is the number lenders use to decide whether to approve you for anything. Mortgage, business loan, credit card, even an apartment lease. Most people don't know their number.

The math is simple. Add every monthly debt payment, including card minimums. Divide by your gross monthly income. Multiply by 100.

Lower DTI means more options. Higher means more doors close.

Key points

• Under 36% is healthy. The sweet spot for mortgage approval and the best rates.
• 36 to 43% is caution. You can still get approved for most things. Rates and terms get worse.
• Over 43% is danger. Conventional mortgage lenders will deny you. Business lenders want heavy documentation or collateral.
• Variable income? Use the average. Add the last 12 months, divide by 12. Lenders do the same thing.

Quick math

If your income averages $7,000 and your debt payments total $2,100, DTI is 30%. Calculate yours now. This one number guides every decision in this course.