A big factor in determining loan eligibility from a lender’s perspective is your debt to income ratio (DTI).
Now, what exactly does that mean?
In this case, income is the amount of money you are paid each month from your job(s) and/or side hustles (including family, friends, and ex’s).
Your debt is the total monthly household expenses it costs to pay all your bills including, keeping a roof over your head, feeding the family, and gassing up the car.
This ratio is the difference between your total monthly income and your total monthly expenses expressed as a ratio.
For instance, if you had a total monthly income of $5,000 and a your total expenses were $3,000, then your debt to income ratio would be 40%.
According to Experian, ‘Depending on the institution, size, and type of loan, DTI ranges often vary, with some lenders accepting ratios of up to 50% and others capping DTI limits at 36%.’
Different types of loans require different ratios but it is safe to say that you want to keep your monthly debt obligations to a minimum to qualify for a future loan.