The Debt-to-Income (DTI) ratio is a personal finance metric that lenders use to evaluate your ability to manage monthly payments and repay debts. It compares your total monthly debt payments to your total monthly gross income.
How is it Calculated?
The formula for the Debt-to-Income ratio is straightforward:
DTI Ratio = (Total Monthly Debt Payments / Total Monthly Gross Income) * 100
In this calculator:
Total Monthly Gross Income: This is your income before taxes and other deductions are taken out. It includes your base salary, wages, overtime, bonuses, commissions, and any other regular income sources.
Total Monthly Debt Payments: This includes all recurring monthly debt obligations. Common examples include:
Mortgage or rent payments
Car loan payments
Student loan payments
Minimum credit card payments (use the total minimums, not just one card)
Personal loan payments
Alimony or child support payments
Any other installment loan payments
Note: This typically excludes regular living expenses like utilities, groceries, insurance premiums (unless they are part of a loan payment, e.g., property tax escrow), and subscriptions.
Why is DTI Important?
Lenders use your DTI ratio to assess the risk of lending you money. A lower DTI generally indicates a lower risk, making it easier to qualify for loans and potentially secure better interest rates.
Lower DTI (e.g., 36% or less): Generally considered good. You have a healthy amount of disposable income.
Moderate DTI (e.g., 37% to 43%): May still qualify for loans, but potentially with stricter terms or higher interest rates.
Higher DTI (e.g., above 43%): Can make it difficult to qualify for new loans, especially mortgages, as lenders may view you as overextended.
While lenders have specific thresholds, understanding your DTI is also crucial for personal financial planning. It helps you see how much of your income is committed to debt and can guide decisions about taking on new debt or increasing payments.
function calculateDTI() {
var monthlyGrossIncomeInput = document.getElementById("monthlyGrossIncome");
var totalMonthlyDebtPaymentsInput = document.getElementById("totalMonthlyDebtPayments");
var dtiResultDisplay = document.getElementById("dtiResult");
var monthlyGrossIncome = parseFloat(monthlyGrossIncomeInput.value);
var totalMonthlyDebtPayments = parseFloat(totalMonthlyDebtPaymentsInput.value);
if (isNaN(monthlyGrossIncome) || isNaN(totalMonthlyDebtPayments)) {
dtiResultDisplay.textContent = "Invalid Input";
return;
}
if (monthlyGrossIncome <= 0) {
dtiResultDisplay.textContent = "Income must be positive";
return;
}
if (totalMonthlyDebtPayments < 0) {
dtiResultDisplay.textContent = "Debt cannot be negative";
return;
}
var dtiRatio = (totalMonthlyDebtPayments / monthlyGrossIncome) * 100;
// Format to two decimal places for better readability
dtiResultDisplay.textContent = dtiRatio.toFixed(2);
}