Debt-to-Income

Your debt to income ratio is a measure of much of your income is spent paying your debts.

A higher debt-to-income, or DIT, ratio means you are using more of your monthly income to pay off debts. Lenders, banks and even property rental companies use the DTI to determine your creditworthiness when refinancing a mortgage.

If your DTI is too high, you may be viewed as not being able to make your scheduled payments. To determine your percentage of debt to income, simply divide your total monthly debt payments (credit cards, auto loans, utilities and rent, etc.) by your monthly take-home income.

The lower the number, the more income you have available to meet your needs. A percentage more than 50% is typically considered very risky.

Posted in Refinance Glossary.