Debt-to-income ratio (DTI)

Debt-to-income ratio measures the share of a person's gross (pre-tax) monthly income that goes toward debt payments, expressed as a percentage. Lenders use it, alongside credit scoring, as a core measure of whether a borrower can take on additional debt, particularly for mortgage underwriting, where it is one of the most heavily weighted factors in an approval decision.

The formula is total monthly debt payments / gross monthly income × 100. Lenders commonly distinguish a "front-end" ratio, covering housing costs alone, from a "back-end" ratio, covering all debt payments including housing, credit cards, auto loans, and student loans; thresholds for what counts as acceptable vary by lender and loan type rather than following one fixed rule. This differs from a savings rate or net worth tracking calculation, which look at what is being saved or accumulated rather than at debt obligations against income.

DTI is a widely used personal finance self-check for borrowing capacity and financial stress, often reviewed alongside consistent budget categorization to see which debts are driving the ratio. A common pitfall is confusing DTI with credit utilization, a different ratio based on revolving credit limits rather than income; DTI also says nothing about cost of living in a given area, which is part of why it is often read alongside a housing affordability index. This is a general, informational description of a lending metric, not financial advice about any individual's borrowing decisions.