Debt-to-income ratio explained.

What is DTI?

Your debt-to-income ratio (DTI) is all your monthly debt payments divided by your gross monthly income. This number is one way lenders measure your ability to manage the monthly payments to repay the money you plan to borrow.

What the ratio’s mean:

Good: 36% or less
Manageable: 37% to 42%
Cause for concern: 43% to 49%
Dangerous: 50% or more

Lenders prefer the clients ratio to be 42% or less. Most lenders will not proceed with an application if the ratio is more than 43% although exceptions can be made.

What is gross income?

This is the amount of money a person makes before taxes are taken off.

For example: If Sam's employer offers her a $50k salary per year, that is her gross income. But after Sam's paycheques deposit into her bank account, the amount is only $36,662. That is her net (after tax) income. When a lender is qualifying you for a loan, they keep it simple by using your gross income.