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DTI Ratio
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Overview & Methodology
The Debt-to-Income (DTI) ratio is an important metric used by lenders to assess your borrowing capacity. It compares your monthly debt payments to your gross monthly income.
The formula is:
$$ \text{DTI Ratio} = \left(\frac{\text{Monthly Debt Payments}}{\text{Gross Monthly Income}}\right) \times 100\% $$
Generally, a DTI ratio below 36% is considered healthy. A ratio between 36% and 43% is acceptable, while a ratio of 43% or higher may indicate financial stress.
Example
For example, if you have €1,500 in monthly debt payments and a gross monthly income of €4,500:
$$ \text{DTI Ratio} = \left(\frac{1500}{4500}\right) \times 100\% \approx 33.3\% $$
A DTI ratio of approximately 33.3% is generally considered healthy.
Frequently Asked Questions
What is a good DTI ratio?
A DTI ratio below 36% is typically considered healthy.
Why is the DTI ratio important?
It helps lenders determine your borrowing capacity by comparing your debt obligations to your income.
How can I improve my DTI ratio?
You can improve your DTI ratio by reducing your debt payments or increasing your income.