What is considered an ideal debt-to-income ratio?

An ideal debt-to-income (DTI) ratio is often considered to be 36% or less. This benchmark is widely recognized in the lending industry as a threshold that balances debt obligations with a borrower’s income. At this ratio, individuals typically demonstrate a favorable capacity to manage additional debt, which is an important factor for lenders when evaluating creditworthiness.

Having a DTI of 36% or less indicates that no more than 36 cents of every dollar earned is used to cover debt payments, leaving a substantial portion of income available for living expenses, savings, and discretionary spending. This can enhance financial stability and reduce the likelihood of defaulting on loan obligations.

In contrast, higher DTI ratios suggest a heavier debt burden, potentially raising concerns for lenders about the borrower’s ability to handle more debt responsibly. While ratios above 36% can still be manageable depending on individual circumstances, they may require closer scrutiny regarding the borrower's financial situation. Hence, a DTI of 36% or less is the optimal target for maintaining financial health and securing favorable loan terms.