DTI is consumer lending acronym that stands for, Debt To Income Ratio – used by banks and lenders as another benchmark for deciding on whether an applicant will qualify for a loan or not.
If the applicant’s debt to income ratio is too high, then the lender will decline the applicant. DTI is based on monthly income vs monthly expenses, and explained further below.
To calculate DTI the lender adds up all of the applicant’s monthly expenses and divides that by the applicant’s monthly income. Example;
If an applicant’s total monthly expenses is $3000 and applicant’s total monthly income is $5000, their DTI would be expressed in this equation;
$3000 รท $5000 = .60
Please note that banks will refer to your monthly expenses as your monthly debt obligations, or recurring debt. Don’t be confused – what they are is calculating your TOTAL monthly monetary obligations. They use your loan payments costs and divide that by your income to get your basic DTI, but they are also going to consider all of your monthly costs, such as rent, food, transportation, and any othe costs.
Many banks will be more concerned with your DTI score than your actual FICO score, which makes good sense in some applicant studies. You can use this page for a DTI calculator if you wish over at Bankrate.
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