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Common Terms 1   Common Terms 2

Debt To Income Ratio

Function: noun

Definition 1:
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his/her net effective income in the case of FHA/VA loans, or gross monthly income in the case of conventional loans. Debt to income ratios are very important for a lender to use when evaluating how risky a borrower is in terms of the likelihood of default. One definition of debt to income ratio is is the percentage of a consumer's monthly gross income that goes toward paying debts.