What Is Debt-to-Income Ratio and Why Does It Matter for Your Mortgage?

What Is Debt-to-Income Ratio (DTI)?

Your debt-to-income ratio measures the percentage of your gross monthly income that goes toward paying off debts. This includes things like:

• Credit card payments
• Car loans or leases
• Student loans
• Lines of credit
• Any other recurring debt obligations

It does not include discretionary spending like groceries or entertainment. Instead, DTI focuses on fixed financial commitments that affect your ability to repay a mortgage.

How Is DTI Calculated?

To find your DTI, you divide your total monthly debt payments by your gross monthly income (your income before taxes and deductions).

Here’s an example:
If you earn $6,000 a month and pay $2,000 toward debts, your DTI is:

$2,000 ÷ $6,000 = 0.33 or 33%

Why Does DTI Matter to Mortgage Lenders?

Mortgage lenders use your DTI to determine how much mortgage you can afford. A lower DTI signals that you have a good handle on your current financial obligations and have room to comfortably take on a mortgage payment.

Most lenders prefer to see a DTI below 43%, though some will accept slightly higher depending on your credit score, down payment, and overall financial profile. Ideally, a DTI below 36% is considered strong and can open the door to better interest rates and loan options.

If your DTI is too high, it may limit your ability to borrow or require you to lower your home buying budget.

Why Your DTI Matters  Before You Start House Hunting

If you’re beginning the process of buying a home in Guelph, understanding your DTI can help you:

• Set a realistic budget
• Avoid disappointment when viewing homes outside your affordable range
• Strengthen your mortgage pre-approval
• Improve your negotiating power by appearing as a lower-risk borrower

Getting a handle on your DTI early can also give you time to make adjustments - like paying down a credit card or consolidating loans - before applying for financing.

How to Improve Your Debt-to-Income Ratio

If your DTI is on the higher side, here are a few ways to improve it before you apply for a mortgage:

• Pay down existing debts, especially high-interest credit cards
• Avoid taking on new debt, like financing a vehicle
• Increase your income (for example, through side income or bonuses)
• Refinance or consolidate existing loans for lower monthly payments

Even small changes can make a big difference in your borrowing power.

Know Your Numbers, Buy with Confidence

Whether you're a first-time buyer or looking to upsize in Guelph, knowing your debt-to-income ratio is a smart first step toward a successful purchase. It helps you understand what you can truly afford and puts you in a stronger position when it's time to make an offer.

Thinking of buying a home this year? Have questions about mortgage financing or how to prepare your finances? Reach out today to chat or get connected with one of our trusted local mortgage professionals. Let’s make your Guelph home buying journey a smooth and successful one!