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Include insurance and property taxes.
What is Debt-to-Income (DTI) Ratio?
Your Debt-to-Income (DTI) ratio is a crucial financial metric that lenders use to measure your ability to manage monthly payments and repay debts. It is calculated by dividing your total recurring monthly debt by your gross monthly income (your income before taxes and deductions).
Why DTI Matters for Mortgages
In the world of real estate and lending, DTI is often the "make or break" factor. Most mortgage lenders prefer a DTI ratio of 36% or lower. However, depending on your credit score and down payment, some lenders may allow ratios up to 43%, or even 50% for FHA loans.
Understanding Your Results
Under 36%: Excellent. You have a healthy balance of debt and income. Lenders view you as a low-risk borrower.
37% – 43%: Good. Most lenders will still approve you, though you may face stricter scrutiny.
44% – 50%: High. You may struggle to find traditional financing and might need to look at specialized loan programs.
Over 50%: Dangerous. Your debt consumes half of your income, leaving little room for unexpected expenses or savings.
A Real-Life Example
Suppose your gross monthly income is $6,000. Your monthly expenses include a $1,500 mortgage, a $400 car payment, and $200 in student loans. Your total monthly debt is $2,100.
Calculation: ($2,100 / $6,000) x 100 = 35% DTI Ratio.
In this scenario, you fall within the "Excellent" range and are likely to qualify for competitive interest rates on new loans.
function calculateDTIRatio() {
var grossIncome = parseFloat(document.getElementById('grossIncome').value);
var housing = parseFloat(document.getElementById('housingPayment').value) || 0;
var car = parseFloat(document.getElementById('carPayment').value) || 0;
var student = parseFloat(document.getElementById('studentLoan').value) || 0;
var credit = parseFloat(document.getElementById('creditCards').value) || 0;
var other = parseFloat(document.getElementById('otherDebts').value) || 0;
var resultDiv = document.getElementById('dtiResult');
if (!grossIncome || grossIncome <= 0) {
resultDiv.style.display = 'block';
resultDiv.style.backgroundColor = '#ffebee';
resultDiv.style.color = '#c62828';
resultDiv.innerHTML = 'Error: Please enter a valid gross monthly income to calculate your ratio.';
return;
}
var totalMonthlyDebt = housing + car + student + credit + other;
var dtiRatio = (totalMonthlyDebt / grossIncome) * 100;
var status = "";
var bgColor = "";
var textColor = "#fff";
if (dtiRatio <= 36) {
status = "Excellent – Low Risk";
bgColor = "#2e7d32";
} else if (dtiRatio <= 43) {
status = "Good – Moderate Risk";
bgColor = "#f9a825";
textColor = "#000";
} else if (dtiRatio <= 50) {
status = "High – Difficult to Qualify";
bgColor = "#ef6c00";
} else {
status = "Dangerous – Very High Risk";
bgColor = "#c62828";
}
resultDiv.style.display = 'block';
resultDiv.style.backgroundColor = bgColor;
resultDiv.style.color = textColor;
var html = '
';
html += '
Your DTI Ratio: ' + dtiRatio.toFixed(2) + '%
';
html += 'Status: ' + status + ";
html += 'Total Monthly Debt: $' + totalMonthlyDebt.toLocaleString() + ";
html += '