When underwriters are determining whether to approve your loan application, they look at your DTI. In simple terms, this is a mathematical equation that compares how much money you bring in against how much you pay out each month.
This percentage is derived from dividing your monthly debt payments by your gross monthly income. For example, let’s say you make $60,000 a year and your monthly debt is $2,000 each month. If you divide the $2,000 in debt payments by your gross monthly income ($5,000), your DTI is 40%.
Your debt-to-income ratio needs to fall under a certain threshold in order to be considered a good risk for a mortgage loan. While some loan programs allow for a higher DTI in certain circumstances, lenders are typically looking for a DTI of 43% or less.