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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 gross monthly income. It provides lenders with a quick assessment of a borrower's ability to manage monthly payments and repay debts.
The calculator uses the DTI formula:
Where:
Explanation: The equation calculates the percentage of gross monthly income that goes toward debt payments, providing insight into financial health and borrowing capacity.
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 total monthly debt payments and gross monthly income in USD. Both values must be positive numbers, with gross monthly income greater than zero for accurate calculation.
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 expenses. DTI above 43% may make it difficult to qualify for new credit.
Q2: What debts are included in DTI calculation?
A: Include all monthly debt obligations: mortgage/rent, auto loans, student loans, credit card minimum payments, personal loans, and any other recurring debt payments.
Q3: How does DTI affect loan approval?
A: Lower DTI ratios improve loan approval chances and may qualify you for better interest rates. High DTI ratios can lead to loan denial or higher borrowing costs.
Q4: Can DTI be too low?
A: While very low DTI is generally positive, it might indicate underutilization of credit or limited credit history, which could also affect lending decisions.
Q5: How can I improve my DTI ratio?
A: You can improve DTI by increasing income, paying down debts, avoiding new debt, or a combination of these strategies.