The significance of a debt-to-income (DTI) ratio is to measure?

The significance of the debt-to-income (DTI) ratio lies in its ability to provide insight into a borrower's financial health by measuring their monthly debt payments relative to their income. This ratio helps lenders assess how much of a borrower's income is already committed to existing debt obligations, which in turn indicates their capacity to take on additional debt, such as a mortgage. A lower DTI suggests that a borrower has a manageable level of debt compared to their income, making them a more favorable candidate for loan approval, while a higher DTI may raise red flags for lenders, indicating potential financial strain. This metric is crucial during the underwriting process, as it plays a significant role in determining the borrower's ability to repay new loans without compromising their financial stability.