DTI is usually debt-based, while serviceability separately assesses limits as commitments. Lender methods vary.
What is Debt-to-Income Ratio (DTI)?
Quick definition
DTI compares total debt to gross annual income. Lenders use it as a risk signal for borrowing capacity.
Borrowing capacityHome loansGeneral
Overview
Debt-to-Income Ratio measures how many times your gross annual income is represented by your total debts. It is commonly used as a portfolio and customer-level risk metric in home lending.
A DTI of 6 means debts equal six times gross annual income. Different lenders have different tolerance levels by borrower profile, deposit size, and repayment strength.
DTI is not the only assessment factor, but it often influences policy outcomes alongside serviceability, living expenses, and credit history.
Formula
DTI = Total Debt / Gross Annual IncomeWhy it matters
- Higher DTI can reduce approval probability or loan size.
- DTI can influence lender policy exceptions and document checks.
- Lower DTI can improve flexibility for future borrowing.