function calculateDTIRatio() {
var grossIncome = parseFloat(document.getElementById('grossMonthlyIncome').value) || 0;
var rent = parseFloat(document.getElementById('monthlyRentMortgage').value) || 0;
var car = parseFloat(document.getElementById('carPayments').value) || 0;
var student = parseFloat(document.getElementById('studentLoans').value) || 0;
var credit = parseFloat(document.getElementById('creditCardPayments').value) || 0;
var other = parseFloat(document.getElementById('otherDebts').value) || 0;
var resultBox = document.getElementById('dtiResultBox');
var percentageSpan = document.getElementById('dtiPercentage');
var statusPara = document.getElementById('dtiStatus');
var descPara = document.getElementById('dtiDescription');
if (grossIncome <= 0) {
alert("Please enter a valid Gross Monthly Income.");
return;
}
var totalMonthlyDebt = rent + car + student + credit + other;
var dtiRatio = (totalMonthlyDebt / grossIncome) * 100;
var roundedDti = dtiRatio.toFixed(2);
resultBox.style.display = 'block';
percentageSpan.innerHTML = roundedDti + "%";
if (dtiRatio 35 && dtiRatio 43 && dtiRatio <= 50) {
resultBox.style.backgroundColor = '#fff0e6';
statusPara.innerHTML = "High (Caution)";
statusPara.style.color = "#e67e22";
descPara.innerHTML = "You may find it difficult to qualify for traditional financing. Consider paying down credit cards or increasing income to lower your ratio.";
} else {
resultBox.style.backgroundColor = '#fdeaea';
statusPara.innerHTML = "Very High (High Risk)";
statusPara.style.color = "#c0392b";
descPara.innerHTML = "Most lenders will deny loan applications at this level. Financial counseling or aggressive debt consolidation may be necessary.";
}
}
Understanding the Debt-to-Income (DTI) Ratio
The Debt-to-Income (DTI) ratio is a vital financial metric used by lenders, particularly in the mortgage industry, to evaluate your ability to manage monthly payments and repay borrowed money. It compares your total monthly debt obligations against your gross monthly income (your pay before taxes and deductions).
How the DTI Ratio is Calculated
The math is straightforward: divide your total recurring monthly debt by your gross monthly income. For example, if you pay $1,500 for your mortgage, $300 for a car loan, and $200 for student loans, your total monthly debt is $2,000. If your gross monthly income is $6,000, your DTI is 33.3%.
Formula:
(Total Monthly Debt Payments รท Gross Monthly Income) x 100 = DTI Ratio %
Why DTI Matters for Home Buyers
When applying for a mortgage, the DTI ratio is often just as important as your credit score. Lenders use it to determine your "ability to repay." A lower DTI suggests a good balance between debt and income, while a high DTI indicates that a borrower might have too much debt for the amount of income they earn.
The 43% Rule: Most conventional lenders prefer a DTI ratio below 43% for mortgage approval.
Interest Rates: Borrowers with lower DTI ratios often qualify for better interest rates and terms.
Loan Limits: Your DTI directly impacts the maximum loan amount a bank is willing to lend you.
Practical Example
Consider Sarah, a prospective home buyer:
Category
Amount
Gross Monthly Income
$5,500
New Housing Payment
$1,800
Car Payment
$400
Credit Card Minimum
$150
Calculated DTI
42.7%
In this case, Sarah is right on the edge of the 43% limit. To improve her chances, she might want to pay off the credit card entirely or look for a slightly less expensive home.