What does DTI stand for in mortgage lending?

In mortgage lending, DTI stands for Debt-to-Income ratio. This is a crucial metric used by lenders to assess an applicant's ability to manage monthly payments and repay debts. The DTI ratio is calculated by taking the total monthly debt payments and dividing them by the gross monthly income. This ratio helps lenders evaluate the borrower's financial health and determine how much additional debt they can safely take on without straining their finances.

A lower DTI is generally viewed as more favorable, indicating that a smaller portion of a borrower's income is going towards debt repayment, freeing up more income for housing expenses and other necessities. Understanding DTI is essential for both lenders and borrowers as it plays a significant role in the mortgage approval process, guiding lending decisions and the terms of the mortgage offered.