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What is a debt-to-income (DTI) ratio?

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A debt-to-income ratio (DTI) is used by lenders to assess your loan serviceability – that is, your ability to make mortgage repayments without falling into a tough financial position.

Your DTI ratio is literally the total amount of debt you have balanced against the total amount of income you receive.

It’s partly a mark of APRA-mandated responsible lending, but also a way to make sure the bank receives the money they've lent to you back, including interest. 

The debt-to-income ratio is also known as a loan-to-income ratio (LTI) and is an important factor to consider during the home loan application process

You'll often see DTI ratios expressed as a two-digit decimal, representing how many times as much debt you have than your income.

For example, you could have a DTI ratio of 4.9 times. This would mean that you have 4.9 times as much debt as your income. 

How to calculate your DTI ratio

To calculate your debt-to-income ratio for a home loan, you’ll need to take the total amount of debts and liabilities you have (including your home loan amount), then divide that number by your pre-tax (or, gross) income. The number your calculator spits out is your DTI – easy!

What is used to calculate DTI ratios?

The sorts of income used to calculate your DTI ratio can include:

  • Your gross income (pre-tax)
  • Overtime pay and bonuses
  • Casual/contract work income
  • Commission
  • Rental income from investment properties
  • Dividends from share trading
  • If self-employed, net profit before tax

The debts which will factor into your DTI ratio can include:

Let’s look at an example of how to calculate a debt-to-income ratio:

Ash is applying for a $300,000 home loan and makes $60,000 per year from working. They currently have a car loan worth $10,000 and a credit card with a limit of $2,000. 

If Ash adds up all their debts (home loan, credit card, and car loan), they end up with $312,000. Divide that number by their income of $60,000, and we find their debt-to-income ratio is 5.2 times. 

A DTI ratio of 5.2 will generally place Ash in the “good, but not great” category in a lender’s eyes. This means that the amount Ash can borrow might be more than someone with a bad (high) DTI.

What is a good DTI ratio?

A good DTI ratio is low. 

The higher your debt-to-income ratio, the less likely you’ll be able to secure the loan you want. With a “high” DTI of 9 times or above, your likelihood drops to near-zero.

So it’s best to tackle any other debts or loans you’ve got first, before applying for a home loan.

If you don’t have any other debts, then you’ll need to increase your income to balance out that ratio, or have a look at some other things you can do if the bank won’t lend you as much as you want.

As a general rule, low, medium, and high debt-to-income ratios look something like this:  

  • Low DTI: 3.0 or below, considered excellent
  • Medium DTI: 4.0 – 6.0, considered good, but not excellent
  • High DTI: 7 – 9.0 or higher, considered risky

Do banks have official DTI ratio limits?

Lenders often have maximum debt-to-income ratios that, if exceeded, they generally won’t approve a home loan for. While these aren’t necessarily set-in-stone (lenders consider all sorts of personal circumstances when assessing loan approval) you could use them as a guide when considering a lender based on your circumstances. 

What is ANZ's maximum debt-to-income (DTI) ratio?

ANZ's maximum DTI ratio is 7.5 times. 

What is Commonwealth Bank's maximum debt-to-income (DTI) ratio?

Commonwealth Bank doesn’t have an explicit DTI ratio cap. However, anything over 7.0 times requires manual approval from their credit department.

What is NAB's maximum debt-to-income (DTI) ratio?

NAB's maximum DTI ratio for lending is 8.0 times. 

What is Westpac's maximum debt-to-income (DTI) ratio?

Westpac's maximum DTI ratio is 7.0 times. 

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How to lower your debt-to-income (DTI) ratio

Jack Dona
Jack Dona
RG146
Money writer

Jack is RG146 Generic Knowledge certified, with a Bachelor of Communications in Creative Writing from UTS, and uses his creative flair to cut through the financial jargon and make home loans, insurance and banking interesting. His reader-first approach to creating content and his passion for financial literacy means he always looks for innovative ways to explain personal finance. Jack's research and explanations have been featured in government publications, and his work is regularly featured alongside major publications in Google's Top Stories for Insurance.

While it won't be impossible to secure a home loan approval with a high DTI ratio, lowering it could improve your chances. 

To lower your DTI, you want to clear as much of your debt as possible. If you can't clear your debt quickly, reducing the amount of debt by any amount can help.

This could include: 

You'll also want to, where possible, increase your income.

If you want to read more about home loans, then have a look at some of our other guides and articles. Or compare home loans now, to see what rates and offers are currently available in the Mozo database.