Understanding Your DTI Like You’re 10 Years Old

Understanding Your DTI Like You’re 10 Years Old

(Because You Shouldn’t Need a Finance Degree to Buy a Home)

Let’s keep it all the way real, when most people hear “DTI,” their eyes glaze over.
But if you’re trying to get a home loan, your Debt-to-Income Ratio (DTI) is everything.

It can literally be the difference between getting approved or denied.
But don’t worry. I’m going to explain it like you’re 10 years old. (Because honestly, that’s how I needed it explained, too.)

So, what is DTI?

Imagine this:

You earn $100 a month.
You spend $40 of that paying off stuff like:

• Your car note

• Credit card minimums

• Student loans

That means your DTI is 40%.

It’s just a percentage that shows lenders how much of your income is already going toward debt.
The lower your DTI, the better your chances of getting approved for a home loan.

Let’s Break It Down Step-by-Step:

Step 1: Add Up Your Monthly Debts

Only include payments that show up on your credit report: ✔️ Car loans
✔️ Student loans
✔️ Credit card minimum payments
✔️ Personal loans
✔️ Your future estimated mortgage (if you have one)

No need to count groceries, Netflix, or gas. Just debt payments.

Step 2: Know Your Gross Monthly Income

That means:

• What you make before taxes

• Include your full-time job, side hustles, rental income—everything

Step 3: Plug It Into This Formula

DTI = (Monthly Debt ÷ Monthly Income) × 100

Let’s say:

• Your monthly debt = $1,500

• Your monthly income = $5,000

DTI = (1,500 ÷ 5,000) × 100 = 30%

Most lenders like to see a DTI under 36%
Some will go up to 43%, but lower is always better.

Why Does This Matter?

Because your DTI tells a lender,
“Yes, I can handle a mortgage.”
Or…
“Whoa, this person is already drowning in debt.”

If your DTI is too high, you may get denied—or only qualify for a smaller loan.

What If My DTI Is Too High?

No stress. You’ve got options:

• Pay down debt (start with high-interest ones first)

• Increase your income (side hustles count!)

• Get a co-borrower (if it makes sense)

• Delay the loan and use the time to build your financial profile

Want a Plug-and-Play Calculator?

My Live for Free guide includes a printable DTI worksheet that walks you through it—plus tools to plan your next move like a pro.
Because financial freedom doesn’t have to be complicated. It just has to be intentional.

Grab the Guide

Inside Live for Free: The Mindful Guide to House Hacking & Financial Freedom, you’ll learn:

• How to calculate your DTI + use it to your advantage

• What lenders actually look for

• My exact strategy to buy with 5% down and no PMI

• Step-by-step tips to house hack your way to wealth

💡 Download Live for Free now and stop guessing—start moving.