Debt-To-Income Ratio - DTI

A way to determine whether a person can afford the amount of debt they are carrying.

How's that magic work? Well, you start with the total the amount they're paying out each month to service the debt (See: Debt Servicing). That'd be the interest plus the required principal paydown. Then, divide that total by their total monthly income. That's the debt-to-income ratio. The higher the ratio, the less manageable the debt.

The figure comes up a lot when applying for a mortgage. Typically, lenders focus in on the surprisingly specific figure of 43%. If the mortgage payment you're applying for would put you above the 43% DTI level, you're unlikely to get the loan no matter how much you beg and cry.

Keyword: Rich Uncle Larry.