Debt-to-Income (DTI) Ratio Calculator
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Your DTI Ratio is:
Understanding the Debt-to-Income (DTI) Ratio
Your Debt-to-Income (DTI) ratio is a crucial financial metric used by lenders, especially mortgage providers, to determine your ability to manage monthly payments and repay debts. It compares your total monthly debt obligations to your gross monthly income.
How to Calculate Debt to Income Ratio
The math behind DTI is straightforward. You sum all your mandatory monthly debt payments and divide that total by your gross monthly income (your pay before taxes and deductions are taken out).
DTI = (Total Monthly Debt / Gross Monthly Income) x 100
A Realistic Example
Let's look at a typical scenario:
- Gross Monthly Income: $6,000
- Monthly Expenses:
- Rent: $1,200
- Car Loan: $350
- Student Loan: $250
- Credit Card Minimum: $100
- Total Monthly Debt: $1,900
In this case, the calculation would be: ($1,900 รท $6,000) = 0.316, or 31.6% DTI.
What is a Good DTI Ratio?
Lenders generally categorize DTI ratios as follows:
- 35% or Less (Excellent): You have a healthy balance between debt and income. Most lenders see you as low-risk.
- 36% to 43% (Good/Acceptable): This is the standard range for most conventional mortgage approvals. You may still qualify for various loan products.
- 44% to 50% (High Risk): You are approaching a level where financial flexibility is limited. Some specialized loans may still be available.
- Above 50% (Struggling): More than half of your income goes to debt. It will be very difficult to secure new credit or handle unexpected expenses.