What is Debt-to-Income Ratio (DTI)?
Debt-to-Income Ratio (DTI) measures the percentage of a borrower's gross monthly income consumed by debt payments, including the proposed loan payment. Front-end DTI includes only housing-related payments (PITI: principal, interest, taxes, insurance). Back-end DTI includes all recurring debt obligations (housing + auto loans + student loans + credit cards + other installments). DTI is a primary underwriting criterion for residential and consumer lending, with agency guidelines typically capping at 43-50%.
Formula
DTI = Total Monthly Debt Payments / Gross Monthly Income
How LoanBook Uses Debt-to-Income Ratio
LoanBook uses DTI in the Default Model: as a term in the Residential default hazard, and as a credit multiplier for consumer loans. A missing DTI makes no adjustment. The platform standardizes DTI from various input formats and includes it in stratification analysis and portfolio risk scoring.
Frequently Asked Questions
What is the maximum DTI for a conventional mortgage?
Fannie Mae and Freddie Mac generally allow up to 45% back-end DTI, with exceptions up to 50% for strong compensating factors (high FICO, low LTV, reserves). FHA allows up to 57% in some cases.
Related Terms
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