Definition
The percentage of your gross monthly income that goes toward debt payments, including your new mortgage payment. Most lenders require ratios below 43% for mortgage approval.
Where you’ll meet it
Am I ready? Money, credit, and what it really costs
See it in Buying my first home · Step 1About this term
Debt-to-income ratio is calculated by dividing total monthly debt payments (including the new mortgage, credit cards, car loans, student loans) by gross monthly income. A lower ratio indicates better loan qualification and higher approval chances. Paying down existing debt before applying for a mortgage improves the ratio.
Pro Tip
Calculate your debt-to-income ratio before applying for a mortgage. If it's above 43%, pay down debt first.
Example
The buyer had a gross monthly income of $6,000 and total monthly debt of $1,800 (including the new $1,200 mortgage), resulting in a 43% debt-to-income ratio.