What is a good debt-to-income ratio?


Quick Answer

According to the Consumer Financial Protection Bureau, a debt-to-income ratio of 36 percent and under is good. It is more difficult to get a loan approved when the ratio is over 43 percent, especially if the loan is for a qualified mortgage.

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What is a good debt-to-income ratio?
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Full Answer

The lower the percentage, the greater the chance that the loan application is approved. Debt-to-income ratio is the amount of debt a consumer has to pay each month out of the monthly gross income. A low ratio indicates that a person's debt is manageable and the probability is high that the person can pay monthly financial obligations.

The ratio is calculated by dividing total monthly debt by the total monthly gross income. Gross income is the amount of monthly income before deductions and taxes are subtracted. Debt-to-income, or DTI, is expressed as x/y, where x is the front-end ratio and y is the back-end ratio. The front-end ratio is the amount of debt paid for mortgage or rent. The back-end ratio is the rent or mortgage payments plus all other monthly recurring debt payments.

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