Debt-to-Income (DTI) Ratio Calculator
Determine your eligibility for mortgages and personal loans by calculating your DTI percentage.
Your Debt-to-Income Ratio:
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Understanding Your Debt-to-Income (DTI) Ratio
The Debt-to-Income (DTI) ratio is a critical financial metric used by lenders—including mortgage providers and personal loan companies—to evaluate your ability to manage monthly payments and repay debts. It compares your total monthly debt obligations to your gross monthly income (your pay before taxes and deductions).
How the DTI Calculation Works
The formula for DTI is straightforward but requires honesty regarding all your recurring monthly liabilities. Lenders typically look for two types of DTI: "Front-end" (housing costs only) and "Back-end" (all debts). This calculator focuses on the Back-end DTI, which is the industry standard for most loan approvals.
Formula: (Total Monthly Debt Payments ÷ Gross Monthly Income) x 100 = DTI %
What is a "Good" DTI Ratio?
- 35% or Less: Excellent. You have a healthy balance of debt and income. Most lenders see you as low-risk.
- 36% to 49%: Fair. You may qualify for loans, but lenders might require higher credit scores or offer slightly higher interest rates.
- 50% or Higher: High Risk. You may find it difficult to borrow money, as a large portion of your income is already committed to debt.
Example Calculation
Let's say you earn $6,000 per month (Gross). Your monthly expenses are:
- Mortgage: $1,500
- Car Loan: $400
- Student Loan: $300
- Credit Card Minimums: $200
Your total monthly debt is $2,400. Dividing $2,400 by $6,000 gives 0.40, or a 40% DTI ratio. This falls into the "Fair" category for most mortgage lenders.
Tips to Improve Your DTI
If your ratio is too high for a loan approval, consider these two strategies:
- Reduce Monthly Debt: Focus on paying off high-interest credit cards or small balance loans to lower the total monthly payout.
- Increase Income: Bonuses, raises, or side income can lower your ratio, provided that income is documented and stable.