Why You Need to Understand Debt-to-Income Ratio as a Real Estate Agent
If you’re a real estate agent, knowing how to calculate a Debt-to-Income (DTI) ratio is one of the most important tools in your math toolbox. Why? Because this one number can make or break your buyer’s chance of getting approved for a mortgage. When you’re helping clients find their dream home, you need to understand how loan approvals work—and DTI is a big part of that puzzle.
Mortgage lenders use the DTI ratio to determine how much of your client’s monthly income is already committed to other debts. This includes items like car loans, student loans, credit card payments, and yes—housing costs. When the ratio is too high, lenders see that as a red flag. So the lower the ratio, the better their chances for loan approval.
When you understand DTI, you can guide clients better, answer their questions confidently, and even help them prepare financially before applying for a mortgage.
What Is Debt-to-Income Ratio?
The Debt-to-Income ratio is a percentage. It shows how much of a person’s gross monthly income (that’s the amount before taxes and deductions) goes toward monthly debt payments.
Here’s the basic formula:
Debt-to-Income Ratio (DTI) = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100
Lenders typically like to see a DTI below 43%, but that number can vary depending on the lender and loan type.
A Simple DTI Example You Can Use Today
Let’s go through an easy, step-by-step example of how to calculate the Debt-to-Income ratio. Imagine you’re working with a client named Lisa.
Lisa’s Monthly Debts:
- Car payment: $300
- Student loan: $200
- Credit card minimum payment: $100
- Proposed mortgage payment: $1,200
Total Monthly Debts = $300 + $200 + $100 + $1,200 = $1,800
Lisa’s Gross Monthly Income: $5,000
Now plug those numbers into the formula.
Step-by-Step DTI Calculation
Step 1: Divide total monthly debt by gross monthly income:
$1,800 ÷ $5,000 = 0.36
Step 2: Multiply the result by 100 to convert it to a percentage:
0.36 × 100 = 36%
Lisa’s Debt-to-Income Ratio is 36%
Since 36% is below the typical 43% maximum, Lisa is likely in good shape to qualify for a mortgage—at least from a DTI standpoint. As a real estate agent, this means you can feel confident continuing the home search knowing loan approval is more likely.
Tips for Using DTI When Working with Clients
- Always ask clients if they know their monthly income and current debts.
- Walk through the DTI calculation with them so they understand what they can afford.
- Use DTI to help clients focus on homes in their budget range.
- Recommend paying off small debts to improve their DTI before applying for a loan.
Want More Real Estate Math Practice?
Understanding DTI is just one of many real estate math concepts you’ll need to master on your way to becoming a top-performing agent. If you want more practice with real-world problems, we’ve got just the thing for you.
You can get access to a workbook with 125 Real Estate Math Problems—All Solved and Explained. Practice makes perfect, especially when it comes to understanding the numbers that matter in real estate.