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The debt-to-income ratio measures the amount of debt a person has compared to overall income.

The ratio takes an individual’s total recurring monthly debt, including mortgages, credit card payments, and anything else, and divides it by monthly income before taxes and other deductions are taken out. If monthly debt payments amount to $2,000, and gross monthly income is $6,000, the debt-to-income ratio is .33.

A low ratio reveals a good balance between debt and income. Lenders use the ratio to determine a borrower’s ability to make installments on a loan and eventually pay it back. They believe loan candidates with lower ratios are more likely to be successful.

In most cases, 43% is the highest ratio a borrower can have and still qualify for a mortgage. Lenders prefer a number below 36%, with no more than 28% going to a mortgage.

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