 TITLE: What Is Debt-to-Income Ratio and How Do I Calculate It? CONTENT: What Is a Good Debt-to-Income Ratio?\n------------------------------------\nYour DTI helps lenders quickly see how your debt matches up to your income, giving them an idea of your ability to pay any new debt every month. Generally, the lower your DTI, the better, because this shows lenders you have the extra income after your current debt obligations to take on new loan payments.\nThe ideal DTI, however, depends on the type of loan you're applying for and the lender. For example, when applying for a personal loan, a higher DTI may be acceptable; but when applying for a mortgage, the lender may have stricter standards.\nWith mortgage loans, for instance, lenders may look for a front-end DTI of 28% or lower—the maximum for an FHA loan is 31%—and a back-end ratio less than 43% (though sometimes less than 36%). Conventional-loan guidelines by Fannie Mae and Freddie Mac allow for back-end DTIs as high as 50% in some circumstances.\nWhile other loan types are available to those with a DTI over 50%, a ratio that high can restrict your ability to borrow. Each lender has its own criteria for determining eligibility, and a high DTI can put you at risk of getting denied or getting approved but with a high interest rate.\nWhile it's important to work to reduce your DTI, remember that it's not the only factor lenders evaluate. They'll also look at your credit reports and credit scores, your employment situation and other important factors. As you consider how to improve your chances of getting approved for a loan with favorable terms, be sure to look at the whole picture and how you can represent as low of a risk as possible to future lenders. END