Why is Your DTI Ratio Important?
Lenders use your DTI ratio to assess your ability to manage monthly payments and repay money you plan to borrow. A lower DTI ratio suggests you have a good balance between debt and income.
Conversely, a high DTI ratio can indicate that you have too much debt for the amount of income you earn each month. This can make it difficult to qualify for new loans or credit.
What is a Good DTI Ratio?
For most lenders, the highest DTI ratio a borrower can have and still qualify for a mortgage is 43%. However, most lenders prefer a DTI ratio of 36% or lower, with no more than 28% of that debt going towards your mortgage or rent payment.
Managing Your DTI Ratio
If your DTI ratio is too high, there are two primary ways to lower it: increase your income or decrease your monthly debt payments. Reducing your credit card balances or paying off a car loan can significantly improve your ratio.