1. What is Debt-To-Income Ratio?

The Debt-To-Income (DTI) ratio is a personal finance measure that compares an individual's monthly debt payments to their gross monthly 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.

2. How Does the Calculator Work?

The calculator uses the DTI formula:

Where:

• Total Monthly Debt Payments — Sum of all monthly debt obligations (mortgage, car loans, credit cards, etc.)
• Gross Monthly Income — Total income before taxes and deductions

Explanation: The equation calculates what percentage of your gross income goes toward debt payments each month.

3. Importance of DTI Calculation

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.

4. Using the Calculator

Tips: Enter your total monthly debt payments and gross monthly income in USD. Include all recurring debt obligations (mortgage/rent, auto loans, student loans, credit card minimum payments, etc.) and your total pre-tax income from all sources.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good DTI ratio?
A: Generally, a DTI below 36% is considered good, with no more than 28% going toward housing costs. DTI below 20% is excellent, while 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 payments: mortgage/rent, auto loans, student loans, personal loans, credit card minimum payments, alimony, child support, and any other ongoing debt obligations.

Q3: What income sources should be included?
A: Include all pre-tax income: salary, wages, bonuses, commissions, tips, investment income, rental income, alimony received, and any other regular income sources.

Q4: How can I improve my DTI ratio?
A: You can improve your DTI by increasing your income, paying down existing debts, avoiding new debt, or a combination of these strategies.

Q5: Do lenders use front-end or back-end DTI?
A: Lenders typically look at both. Front-end DTI includes only housing costs, while back-end DTI includes all debt obligations. Most focus on back-end DTI for overall qualification.