To determine if monthly income is sufficient for loan approval, calculate the debt-to-income (DTI) ratio and assess income stability. Lenders typically require a DTI below 36% (total debt payments) and 43% (total debt plus new loan payments). Ensure income covers existing debt (e.g., mortgages, credit cards) and the new loan’s monthly payment. For example, a borrower earning $5,000 monthly with $1,500 in existing debt may qualify for a loan if the new payment plus existing debt does not exceed $2,250 (43% of $5,000). Additionally, lenders verify employment history, income sources, and creditworthiness.

The DTI ratio is critical because it reflects a borrower’s ability to manage debt without overextending financial resources. Data from the Consumer Financial Protection Bureau (2022) shows 43% of consumers with DTIs below 36% were approved for mortgages, compared to 28% with DTIs above 50%. For auto loans, a 2023 Federal Reserve report found approval rates dropped by 15% when DTIs exceeded 40%. Income stability is also vital; employers often require at least two years of consistent earnings. A 2021 study by Experian highlighted that 62% of lenders deny loans to self-employed applicants without documented profit trends. Lenders also consider loan type: mortgages generally require higher DTI thresholds (≤43%) than credit cards (≤30%). For instance, a $300,000 mortgage at 4% interest ($1,416 monthly) paired with $800 in existing debt would require a DTI of 34% ($2,216 total payments ÷ $6,500 monthly income). Missing these benchmarks increases default risk, as noted by the FDIC’s 2023 data linking DTI >40% to a 22% higher likelihood of delinquency. Thus, meeting DTI guidelines and demonstrating stable, predictable income are foundational to loan approval.