Debt-to-Income Ratio (DTI)
A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Full Definition
The debt-to-income ratio (DTI) is a key underwriting metric that compares a borrower's total monthly debt payments to their gross monthly income. Lenders evaluate two versions: the front-end ratio (housing expenses only — PITI: principal, interest, taxes, insurance — divided by gross income) and the back-end ratio (all monthly debt obligations, including PITI, car payments, student loans, and credit cards, divided by gross income). Conventional loans typically require a back-end DTI below 43-45%. FHA loans can allow DTI up to 50% with compensating factors. A lower DTI indicates more financial capacity and reduces lender risk.
Real-World Example
A borrower earns $6,000/month gross. Their proposed mortgage payment is $1,500/month and other debts total $500/month. Back-end DTI = ($1,500 + $500) ÷ $6,000 = 33%.
How Debt-to-Income Ratio (DTI) Appears on the Real Estate Exam
Common question types, tested concepts, and what to watch out for
DTI = Monthly Debt ÷ Gross Monthly Income. Know both front-end (housing only) and back-end (all debt) ratios. The exam often presents a scenario and asks whether the borrower qualifies based on DTI limits.
Related Terms
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