What percentage is typically used for the DTI calculation for self-employed members?

The typical percentage used for the Debt-to-Income (DTI) calculation for self-employed members is 40%. This figure accounts for the unique financial dynamics that self-employed individuals often face, such as fluctuating income and varying expense levels.

When evaluating a self-employed applicant's ability to manage debt, lenders apply this percentage to ensure they are not overextending their financial commitments. The 40% threshold strikes a balance that allows for sufficient income flexibility while still maintaining a cautious approach toward lending. This level helps mitigate risk for lenders and encourages responsible borrowing practices among self-employed individuals.

Understanding this percentage is essential for accurately assessing financial eligibility for loans, particularly in contexts like mortgage applications, where income stability is critical.