Summary: Your debt-to-income ratio helps lenders determine how much more debt that you can afford.
If you’ve read a couple of articles about obtaining a loan, you probably have come across the term debt to income ratio or DTI.
Your debt to income ratio is a big determining factor in your loan eligibility because it tells lenders how much more debt you can afford.
Fannie Mae will approve borrowers for mortgages with DTI ratios between 45-50% under specific conditions.
However, those ratios are at the higher end of a recommended debt load, and most lenders like to see a debt to income ratio under 40%.
To calculate your debt to income ratio, you add up your monthly debt obligations and divide them by your monthly pre-tax income.