The debt-to-income (DTL) ratio is a standard yardstick that many lenders use to determine the soundness of the mortgage applications that come across their desks. In fact, one of the most common reasons for denying a loan is because the potential borrower has monthly payments that exceed the standard limit of 43 percent. Possible reform that could go into effect in 2021 could ease these standards and make it easier for some to qualify for a mortgage.
How DTL Ratios Work
While lenders look at a number of factors when scrutinizing an application for a mortgage, the DTL ratio is one of the most important. It’s determined by comparing the borrower’s gross monthly income with their recurring monthly debts.