The debt-to-income ratio measures the percentage of a person’s debt when compared to his overall income.It’s calculated by dividing total recurring monthly debt by gross monthly income. Suppose John has $2,000 in monthly debt that includes his mortgage, car loan and credit card payments. If he brings home $6,000 a month in pay, his DTI is 33%. Lenders use the DTI ratio to gauge a loan applicant’s ability to repay debts. The lower the number, the better the chance a borrower has to receive a loan. In most cases, 43% is the highest ratio a borrower can have and still qualify for a mortgage. But lenders prefer a number below 36%, with no more than 28% going to an existing mortgage or rent payment. Reducing monthly debt or increasing income can lower DTI ratios. If John has the same recurring debt but receives a pay increase to $8,000 a month, his DTI becomes 25%. Or, if John’s income stays the same, but he pays off his car loan and cuts his monthly debt to $1,500, his DTI also lowers to 25%.