Debt to income ratio
Also called: DTI
Debt to income ratio compares your monthly debt payments with your monthly income to show how much of your earnings already goes to debt.
Debt to income ratio, often shortened to DTI, is the share of monthly income that goes toward debt payments, written as a percentage. You calculate it by adding up your monthly debt obligations and dividing by your gross monthly income. For example, if your payments total 2,000 dollars and your income is 8,000 dollars, your DTI is 25 percent. Lenders use it most often on the personal side of a small business application to see whether a borrower is already stretched thin, and it complements business measures like cash flow and the debt service coverage ratio.
A lower DTI suggests you have room in your budget to take on a new payment, which can help your approval odds and pricing, while a high DTI signals that much of your income is already committed. Many lenders prefer to see DTI on the lower side, though acceptable levels vary by lender and loan type. To improve it, you can pay down existing balances, avoid taking on new debt right before you apply, or increase your income. Even small reductions in monthly obligations can move the ratio in a helpful direction.
Common questions
How do I calculate my debt to income ratio?
Add up your total monthly debt payments and divide by your gross monthly income, then multiply by 100 to get a percentage. A lower number means less of your income is tied up in debt.
What DTI do lenders want to see?
It varies by lender and product, but many prefer a lower ratio because it shows room to handle a new payment. Bringing balances down before you apply can help.
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