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Debt-to-Income Ratio

March 1, 2012

debt-to-income ratio (often abbreviated DTI) is the percentage of a consumer’s monthly gross income that goes toward paying debts. (Speaking precisely, DTIs often cover more than just debts; they can include certain taxes, fees, and insurance premiums as well. Nevertheless, the term is a set phrase that serves as a convenient, well-understood shorthand.) There are two main kinds of DTI, as discussed below.

Two main kinds of DTI

The two main kinds of DTI are expressed as a pair using the notation x/y (for example, 28/36).

  1. The first DTI, known as the front-end ratio, indicates the percentage of income that goes toward housing costs, which for renters is the rent amount and for homeowners is PITI (mortgage principal and interestmortgage insurance premium [when applicable], hazard insurance premium, property taxes, andhomeowners’ association dues [when applicable]).
  2. The second DTI, known as the back-end ratio, indicates the percentage of income that goes toward paying all recurring debt payments, including those covered by the first DTI, and other debts such as credit card payments, car loan payments, student loan payments, child support payments, alimony payments, and legal judgments.

A good DTI will be 39/45

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