When I was applying for a home loan, my bank asked me about my DTI ratio. I did not know about it, so I asked her to explain it to me. She told me that the %age of monthly income a person uses to pay their debts is referred to as their DTI (debt to income) ratio. It is an essential metric that lenders use for assessing your borrowing risk.
Now you know what is DTI ratio.
If you have a low DTI, then this will indicate that you have a balanced income and debts. A borrower with a low DTI is considered likely to manage his finances effectively. This is why lenders prefer borrowers who have low DTI ratios. However, the maximum DTI ratio varies from one lender to another.
Let’s understand the DTI ratio with the help of an example:Let’s say Dolly is planning to get a housing loan, and for that, she has to calculate her DTI ratio:
Doll’s monthly salary is Rs. 50K
Her expenses are:
Credit card bill – Rs. 6000 monthly
Car Loan EMI – Rs. 15000
The total debt = Rs 21000
DTI ratio = (Total Monthly Debt Payments / Gross Monthly Income) x 100
DTI ratio = (21,000 / 50,000) x 100 = 42
This means that Dolly’s DTI ratio = 42 percent, which further indicates that she uses 42% of her monthly income to pay for her debts.
You can also use an online debt ratio calculator to find out your DTI ratio.
Debt to Credit RatioThis ratio is a measure of the amount of debt a person owes compared to the total of his credit limits on revolving credit A/Cs.
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Read more:
How does rental property affect debt-to income ratio ?
What is ideal debt to income ratio for home loan?
Now you know everything regarding the DTI ratio.
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Authors Of The Question
What is DTI ratio?
Amandeep
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2 Year
2022-06-15T18:22:20+00:00 2022-06-15T18:48:14+00:00Comment
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