Your debt-to-income (DTI) ratio is a key factor in securing better loans and terms. A lower DTI gives you more leverage when buying homes or scaling real estate investments. Lenders view a high DTI as risky, which can result in loan rejections or higher rates. To improve your DTI, focus on paying off small debts, consolidating loans, increasing income, and avoiding new loans. For real estate ventures, ensure rental income is well-documented to boost your DTI effectively.
What is Debt-to-Income Ratio (DTI)?
The debt-to-income ratio, or DTI, is just this: How much of your monthly income is going toward paying off debt. Simple math. But it changes everything.
Here’s the formula:
| Monthly Debt Payments | Divided By | Gross Monthly Income | Equals | Debt-to-Income Ratio |
|---|---|---|---|---|
| $2,000 | ÷ | $6,000 | = | 33% |
So if you’re dropping $2k every month to pay off credit cards, auto loans, student loans, etc., and you’re bringing in $6k before tax?
Your DTI is 33%.
Lenders use this number like gospel. And if it’s too high? They’ll either:
- Decline your loan
- Raise your rate
- Give you a smaller amount
Long story short—if you want financial flexibility and better home options, you gotta get that debt-to-income ratio lower.
Why Does Your Debt-to-Income Ratio Matter So Much?
Because banks care about risk. They’re not your friend—they’re doing math. And when your DTI is high, it screams: “This person might struggle if things get tight.”
Think about it like this:
- Someone making $10,000/month with $6,000 in debt isn’t that attractive to a lender.
- Someone making $6,000/month but only spending $1,000 on debt? WAY more bankable.
Less debt = safer bet. That’s the entire logic. And the loan you want for your Airbnb? Yeah, it depends a lot on this number.
What’s Considered a Good Debt-to-Income Ratio?
Flashback to high school—where 100 was perfect, but you’re aiming for the opposite here. Lower the score, the more attractive you are to lenders.
| DTI Range | What It Means |
|---|---|
| 0% – 20% | Incredible. You’re golden. |
| 21% – 35% | Good. You’re in solid shape. |
| 36% – 43% | Getting risky. Lenders may hesitate. |
| 44%+ | Too high. You need to bring it down. |
Following those rules gives you a massive edge.
Especially when you’re using platforms like reAlpha to scale real estate—it all starts with DTI.
What Debts Count Toward Your DTI?
Not every expense matters here. Lenders look at monthly debt payments that show up on your credit report:
- Credit card payments (minimum, not full balance)
- Car payments or leases
- Student loan payments
- Personal loans
- Mortgage or rent
- Home equity loans
- Medical debt in collection
Stuff like groceries, gas, Netflix, gym memberships—none of that counts. They care about fixed payments.
What Income Counts in the Calculation?
It’s all about your gross income, meaning before taxes.
That includes:
- W-2 job income
- Freelancer or contractor income (with proof)
- Rental income (typically 75% of it counts)
- Social Security, alimony, or child support (verifiable only)
What doesn’t count: under-the-table cash, most passive gains, and unverified side hustles.
So if you’re crushing arbitrage and not reporting it? It won’t help your DTI unless it’s documented.
How To Lower Your Debt-To-Income Ratio FAST
Here’s the part people screw up. They think this takes years. But it doesn’t have to. There are a few ways to tighten this up—and fast.
1. Pay Off Small Debts Aggressively
The fastest wins come from knocking out little bills that are dragging your DTI.
Find the payments hurting your ratio the most and kill them.
Example:
- $800/month car note with 8 months left? Pay it off.
- $3,000 credit card with a $100/month minimum? Take it out.
You’re not just eliminating interest—you’re slashing the monthly obligations lenders will consider.
2. Consolidate Debt
Consider consolidating debts into one lower payment.
Why this helps:
- You drop your interest rate.
- You lower the overall amount you pay monthly.
Just don’t max out your credit cards again the next day. That’ll shoot your DTI right back up.
3. Increase Your Monthly Income
This flips the game.
Your monthly debt doesn’t change—but your income grows.
Think:
- Grab a second income stream (consulting, Uber, your short-term rental hustle)
- Negotiate a raise
- Rent out part of your place (house hack style)
Every new dollar of income lowers your ratio. Don’t underestimate small gains—they compound fast.
4. Don’t Cosign—Ever
Cosigning someone’s loan adds their debt to YOUR DTI. Even if you’re not paying it, lenders count it against you. Stay clear of that drama.
5. Avoid New Loans or Credit Pulls
Planning to buy soon? Pump the brakes on:
- Financing a new car
- Appliances on credit
- Opening a new credit card
Even soft checks can ding your history slightly. And new obligations = higher DTI = tougher loan approval.
6. Leverage Rental Income Properly
Running a short-term rental? Make sure it’s documented cleanly. Lenders want actual leases and income records before they count it. If you’re not legit, they won’t care how well your Airbnb startup is performing. You need a paper trail that shows 12+ months if you want that income to count
Conclusion
maintaining a low debt-to-income (DTI) ratio is crucial for securing favorable loan terms and greater financial flexibility. By paying off debts, consolidating loans, increasing income, and avoiding new financial obligations, you can lower your DTI and improve your chances of approval. For real estate investments, ensuring proper documentation of rental income is essential. Lowering your DTI enhances your leverage, helping you achieve better loan options and reduce financial stress.