What does "Debt-to-income ratio (DTI)" mean?

A good debt-to-income ratio (DTI) for a mortgage is typically 36% or lower. Some lenders may accept a DTI up to 43%, but a lower ratio increases your chances of approval and may secure better loan terms.

The 3-7-3 rule in mortgage refers to the guideline that suggests having a maximum debt-to-income ratio of 36%, with no more than 28% of that going toward housing expenses and no more than 8% for other debts. The evaluation helps ensure borrowers can manage their monthly payments effectively.

Common DTI mistakes include failing to accurately calculate total monthly debt payments, which can lead to an inflated ratio. Many overlook recurring expenses like student loans, credit card payments, and car loans. Additionally, some individuals forget to include alimony or child support payments in their calculations, resulting in a misleading DTI. A DTI above 43% can significantly hinder loan approval chances.

The 33% mortgage rule states that no more than 33% of your gross monthly income should go towards housing expenses, including mortgage payments, property taxes, and insurance. This guideline helps ensure borrowers maintain a manageable debt-to-income ratio, making it easier to afford additional debts.