Free DTI Calculator
Monthly Breakdown:
Total Monthly Income: $0
Total Monthly Debt: $0
What is a Debt-to-Income (DTI) Ratio?
Your Debt-to-Income (DTI) ratio is one of the most critical metrics lenders use to determine your ability to manage monthly payments and repay debts. It represents the percentage of your gross monthly income that goes toward paying debts such as rent, mortgage, credit cards, and student loans.
Unlike your credit score, which tracks your history of repayment, the DTI ratio specifically measures your current financial capacity. A lower DTI indicates that you have a healthy balance between debt and income, making you a more attractive candidate for mortgages and auto loans.
How is DTI Calculated?
The formula for calculating your DTI is relatively straightforward, but accuracy is key. The calculator above uses the following standard formula:
DTI = (Total Monthly Debt Payments / Gross Monthly Income) x 100
Gross Monthly Income is your income before taxes and deductions. Total Monthly Debt includes recurring obligations like housing costs, car loans, and minimum credit card payments, but typically excludes utilities, food, and entertainment expenses.
Understanding Your DTI Score
Once you have used the calculator, it is important to understand what the numbers mean for your financial health:
- 35% or less: This is considered excellent. Lenders view you as a low-risk borrower, and you likely have disposable income remaining after bills.
- 36% to 49%: This range is often considered manageable, but you may face higher interest rates or stricter requirements from some lenders. The "43% rule" is a common standard for Qualified Mortgages.
- 50% or higher: This is considered high risk. With half your income going to debt, you may have trouble obtaining new lines of credit and are more vulnerable to financial shocks.
Why DTI Matters for Homebuyers
If you are planning to buy a home, your DTI is just as important as your credit score. Most mortgage lenders prefer a DTI ratio lower than 43%, although some loan programs (like FHA loans) may allow for higher ratios under specific circumstances. Lowering your DTI before applying for a mortgage can significantly improve your chances of approval and help you secure a lower interest rate.