Debt-to-Income Ratio Calculator
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Your Debt-to-Income Ratio is:
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Understanding Your Debt-to-Income (DTI) Ratio
Your Debt-to-Income (DTI) ratio is one of the most critical metrics lenders use to assess your financial health. It represents the percentage of your gross monthly income that goes toward paying debts. Unlike your credit score, which measures your credit history, the DTI measures your capacity to repay new debt.
Why is DTI Important for Lenders?
When you apply for a mortgage, personal loan, or auto loan, lenders want to ensure you have enough cash flow remaining after paying your existing obligations to handle the new payment. A lower DTI indicates a good balance between debt and income.
What is a Good DTI Ratio?
Generally, the lower your ratio, the better. Here is a standard breakdown of how lenders view DTI percentages:
- 35% or less: Considered excellent. You have manageable debt and are viewed as a safe borrower.
- 36% to 43%: Considered acceptable. You can likely get approved for loans, though perhaps not at the lowest advertised interest rates. 43% is often the maximum DTI for a Qualified Mortgage.
- 44% to 49%: Considered high risk. You may struggle to find approval for a mortgage, or you may be required to have significant cash reserves.
- 50% or higher: Considered critical. With half your income going to debt, you have limited financial flexibility. Lenders typically deny conventional loans in this range.
Front-End vs. Back-End Ratio
This calculator determines your Back-End DTI, which includes all monthly debts. Lenders also look at the "Front-End Ratio," which only calculates housing costs (mortgage, HOA, property tax) against your income. A standard Front-End limit is usually around 28%.
How to Lower Your DTI
If your result is in the "Warning" or "High Risk" zone, consider these strategies:
- Increase Income: Taking on freelance work or asking for a raise increases the denominator of the calculation, lowering the ratio.
- Pay Off Small Debts: Paying off a credit card entirely removes that minimum payment from the calculation.
- Refinance: Refinancing high-interest loans to a lower rate or longer term can reduce the monthly obligation, improving your DTI immediately.