Debt-to-Income (DTI) Ratio Calculator
Assess your financial health and mortgage eligibility instantly.
What is the Debt-to-Income (DTI) Ratio?
The Debt-to-Income (DTI) ratio is a crucial financial metric used by lenders, particularly in the mortgage industry, to determine your ability to manage monthly payments and repay debts. It is calculated by dividing your total recurring monthly debt payments by your gross monthly income (your income before taxes and deductions).
Why Your DTI Ratio Matters
Lenders use your DTI ratio to measure risk. A lower DTI indicates a healthy balance between debt and income, suggesting you are a lower-risk borrower. Conversely, a high DTI suggests that you may have too much debt relative to your income, making it harder to secure new credit or a mortgage.
| DTI Range | Lender Perspective |
|---|---|
| 35% or Less | Ideal: You have a manageable level of debt and are likely to qualify for most loans. |
| 36% to 43% | Acceptable: Most lenders will still approve you, though you may face stricter scrutiny. |
| 44% to 50% | High Risk: You may struggle to find traditional lenders; specific loan types may be required. |
| Over 50% | Critical: Debt is likely overwhelming your income; financial counseling is recommended. |
How to Use This Calculator: An Example
Imagine your gross monthly income is $6,000. Your monthly expenses are as follows:
- Mortgage: $1,500
- Car Loan: $400
- Student Loan: $200
- Credit Cards: $100
Your total monthly debt is $2,200. Dividing $2,200 by $6,000 gives you a DTI ratio of 36.6%. This puts you in the "Acceptable" range for most mortgage lenders.
Tips to Lower Your DTI Ratio
If your DTI is higher than you'd like, there are two primary ways to improve it: Increase your income or decrease your recurring debt. Focus on paying off high-interest credit cards first, or consider debt consolidation to lower your monthly payments.