The Debt-to-Income (DTI) ratio is a crucial financial metric used by lenders, particularly mortgage companies, to determine your ability to manage monthly payments and repay debts. It is expressed as a percentage and represents the portion of your gross monthly income that goes toward paying off debts.
The Formula:
DTI = (Total Monthly Debt Payments / Gross Monthly Income) x 100
How to Calculate Income to Debt Ratio
Calculating your DTI ratio involves two primary components:
Gross Monthly Income: This is the total amount of money you earn each month before taxes and other deductions (like health insurance or 401k contributions). If you are salaried, divide your annual salary by 12.
Total Monthly Debt: This includes recurring monthly obligations such as mortgage or rent, auto loans, student loans, minimum credit card payments, and child support or alimony. It typically does not include utilities, groceries, or insurance premiums.
Understanding Your Results
Lenders use specific benchmarks to evaluate your financial health:
36% or Lower (Excellent): This is considered a healthy DTI. You likely have a good balance between debt and income, making you a low-risk borrower.
37% to 43% (Good/Adequate): Most lenders will still approve loans in this range, though you may face stricter requirements or higher interest rates. 43% is generally the maximum DTI allowed for a Qualified Mortgage.
44% to 50% (High): You are reaching a point where financial changes (like a job loss) could make it very difficult to pay bills. Some specialized loans may still be available.
Over 50% (Very High): You are spending more than half your income on debt. It is highly recommended to focus on debt reduction before applying for new credit.
Example Calculation
Imagine your gross monthly income is $5,000. Your monthly debts are:
function calculateDTIRatio() {
// Get values from input fields
var income = parseFloat(document.getElementById('grossMonthlyIncome').value) || 0;
var rent = parseFloat(document.getElementById('rentMortgage').value) || 0;
var car = parseFloat(document.getElementById('carPayments').value) || 0;
var student = parseFloat(document.getElementById('studentLoans').value) || 0;
var credit = parseFloat(document.getElementById('creditCards').value) || 0;
var other = parseFloat(document.getElementById('otherDebts').value) || 0;
var resultBox = document.getElementById('dti-result-box');
var percentageDisplay = document.getElementById('dti-percentage');
var interpretationDisplay = document.getElementById('dti-interpretation');
// Validation
if (income <= 0) {
alert('Please enter a valid Gross Monthly Income greater than 0.');
return;
}
// Calculate total monthly debt
var totalDebt = rent + car + student + credit + other;
// Calculate ratio
var ratio = (totalDebt / income) * 100;
var formattedRatio = ratio.toFixed(2);
// Display result box
resultBox.style.display = 'block';
percentageDisplay.innerHTML = formattedRatio + '%';
// Provide interpretation and change styling
resultBox.className = ''; // reset classes
if (ratio <= 36) {
resultBox.classList.add('status-good');
interpretationDisplay.innerHTML = "Excellent! Your DTI is within a healthy range for most lenders.";
} else if (ratio > 36 && ratio <= 43) {
resultBox.classList.add('status-fair');
interpretationDisplay.innerHTML = "Adequate. You are likely eligible for most loans, but manage your debt carefully.";
} else {
resultBox.classList.add('status-high');
interpretationDisplay.innerHTML = "High. Lenders may view you as high-risk. Consider paying down debt to improve your score.";
}
// Smooth scroll to result
resultBox.scrollIntoView({ behavior: 'smooth', block: 'nearest' });
}