Definition
Debt-to-income ratio is a borrower's total monthly debt payments divided by their gross monthly income, expressed as a percentage. Lenders use it to decide how much someone can responsibly borrow, typically capping total DTI somewhere in the low-to-mid 40s. A buyer whose DTI creeps upward during escrow — because of a new car loan or credit card, for instance — can suddenly lose an approval they already had. For a seller, a buyer's DTI is invisible on paper but is one of the most common hidden reasons financed sales fall apart late in the process.
Example
A buyer under contract on Frank's house sat at 41% DTI at the time of pre-approval, comfortably under his lender's cap of 45%. Midway through escrow, the buyer opened a new credit card and made a large furniture purchase for the home he was about to buy, pushing his DTI up to 46% without realizing the consequences. The lender re-pulled credit just before funding and denied the loan outright, forcing Frank back to square one only weeks before his own planned move date. Frank hadn't known anything was wrong until his agent called with the bad news, since a buyer's DTI is invisible to the seller until something goes wrong. He later learned to ask buyers directly to avoid any new credit activity until after closing, and to build that request right into future purchase agreements. His next sale, to a cash buyer with no DTI to worry about, closed without any similar surprise.