Debt-to-Income (DTI) Ratio
Ratio comparing monthly debt obligations to monthly gross income.
Detailed Description
Debt-to-Income (DTI) Ratio
What does a lower DTI ratio indicate?
A lower DTI ratio indicates a healthier balance between debt and income, suggesting that the borrower is less likely to default on a loan.
What are the two types of DTI ratios?
The two types of DTI ratios are front-end DTI, which focuses on housing-related expenses, and back-end DTI, which includes all monthly debt obligations.
What is the acceptable range for back-end DTI ratios?
The acceptable range for back-end DTI ratios is usually lower than 36-43%, depending on the lender's criteria.
How can one improve their DTI ratio?
One can improve their DTI ratio by increasing income, reducing debt, avoiding new debt, and budgeting wisely.
What is a common misconception about DTI ratios?
A common misconception is that a high DTI ratio automatically disqualifies a borrower from obtaining a loan; lenders consider other factors as well.