What is debt to income ratio?

What is debt-to-income ratio?

Debt-to-income ratio (DTI) is all your monthly payments for debt divided by your monthly income.  Lenders use this information to assess your credit worthiness. 

A lower DTI makes you a more attractive borrower. Therefore, you will be eligible for a larger loan amount at a lower interest rate.  

Whereas a high DTI indicates that a large portion of your income goes toward repaying debts. That money cannot go towards another payment, like a home loan.  

If you're thinking of purchasing a house within the next year, strive to eliminate as much debt as possible.  While this can be difficult to do when also saving for a downpayment, it will make you a more attractive borrower.