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DTI Formula:
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The Debt To Income (DTI) ratio is a personal finance measure that compares an individual's monthly debt payments to their monthly gross income. It's expressed as a percentage and is used by lenders to assess a borrower's ability to manage monthly payments and repay debts.
The calculator uses the DTI formula:
Where:
Explanation: The formula calculates what percentage of your gross income goes toward debt payments each month.
Details: Lenders use DTI to evaluate creditworthiness. A lower DTI indicates better financial health and increases the likelihood of loan approval. Most lenders prefer a DTI below 36%, with no more than 28% of that debt going toward mortgage payments.
Tips: Enter your total monthly debt payments and gross monthly income in USD. Include all recurring debt obligations (mortgage/rent, car payments, credit card minimums, student loans, etc.) and your total pre-tax income from all sources.
Q1: What is a good DTI ratio?
A: Generally, a DTI below 36% is considered good, with no more than 28% going toward housing costs. A DTI above 43% may make it difficult to qualify for new credit.
Q2: What debts are included in DTI calculation?
A: Include all recurring monthly debt obligations: mortgage/rent, auto loans, student loans, credit card minimum payments, personal loans, and any other ongoing debt payments.
Q3: What income sources should be included?
A: Include all pre-tax income: salary, wages, tips, bonuses, overtime, investment income, rental income, alimony, and child support if you choose to include it.
Q4: How can I improve my DTI ratio?
A: You can improve your DTI by increasing your income, paying down existing debt, avoiding new debt, or a combination of these strategies.
Q5: Do utility bills count as debt in DTI?
A: No, regular living expenses like utilities, groceries, insurance, and entertainment are not considered debt payments for DTI calculation.