Income (Monthly)
Recurring Debts (Monthly)
Debts Cont.
Total Monthly Debt:
$0.00
Gross Monthly Income:
$0.00
Your Debt-to-Income Ratio is
0.00%
Understanding Your Debt-to-Income (DTI) Ratio
Your Debt-to-Income (DTI) ratio is one of the most critical metrics lenders use to assess your ability to repay a loan. Whether you are applying for a mortgage, an auto loan, or a personal line of credit, financial institutions look at this percentage to weigh the risk of lending to you.
Specifically, DTI represents the percentage of your gross monthly income that goes toward paying your recurring monthly debts.
How is DTI Calculated?
The formula for calculating your DTI is relatively straightforward, but accuracy is key. The calculator above uses the standard "Back-End Ratio" method, which includes housing costs plus all other debts:
DTI = (Total Monthly Debt Payments / Gross Monthly Income) x 100
Gross Monthly Income is your earnings before taxes and other deductions. Total Monthly Debt includes your future housing payment (rent or mortgage), car payments, student loans, credit card minimums, and other obligations like child support or alimony.
What is a Good DTI Ratio?
Lending standards vary by institution and loan type (FHA, VA, Conventional), but general guidelines are as follows:
- 35% or Less: Considered excellent. You likely have manageable debt and disposable income. Lenders view you as a low-risk borrower.
- 36% to 43%: This is the typical range for most mortgage approvals. The "Qualified Mortgage" rule generally sets the limit at 43% for the highest debt load a borrower can carry while still getting a standard mortgage.
- 44% to 49%: You may still find lenders, particularly for FHA loans, but you will likely face higher interest rates or stricter down payment requirements.
- 50% or Higher: Lending options become very limited. It is highly recommended to pay down debt before applying for significant new financing.
Front-End vs. Back-End DTI
While this calculator focuses on your total (Back-End) DTI, lenders also look at your Front-End DTI. This ratio only calculates your housing costs (principal, interest, taxes, insurance, and HOA fees) divided by your income. A standard benchmark for Front-End DTI is 28%.
How to Lower Your DTI
If your ratio is higher than 43%, consider these steps before applying for a loan:
- Increase Income: Include income from a side hustle, bonuses, or a co-borrower's income.
- Pay Down High-Payment Debt: Focus on debts with high monthly payments rather than just high balances. Eliminating a $400/month car payment impacts your DTI more than paying off a $5,000 balance with a $50 minimum payment.
- Avoid New Debt: Do not open new credit cards or take out loans regarding the months leading up to a mortgage application.