Debt-to-Income (DTI) Ratio Calculator
Pre-tax monthly earnings
Your Debt-to-Income Ratio
0.00%
Monthly Breakdown:
Total Monthly Debt: $0.00
Gross Monthly Income: $0.00
Total Monthly Debt: $0.00
Gross Monthly Income: $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 evaluate your creditworthiness. Unlike your credit score, which measures your history of paying debts, the DTI ratio measures your capacity to repay new debt. It is a simple percentage that compares your total monthly debt payments to your gross monthly income.
Whether you are applying for a mortgage, an auto loan, or a personal line of credit, lenders want to ensure you aren't overleveraged. A lower DTI indicates that you have a healthy balance between your income and your debt obligations, suggesting you are less likely to default on a new loan.
How DTI is Calculated
The formula for calculating DTI is straightforward but requires accuracy regarding your financial obligations. It is calculated as:
DTI = (Total Monthly Debt Payments / Gross Monthly Income) × 100
Gross Monthly Income refers to your income before taxes and deductions. This includes salaries, wages, bonuses, tips, and other sources like alimony or rental income.
Total Monthly Debt Payments include recurring obligations such as:
- Rent or Mortgage payments (including property tax and insurance)
- Car loan payments
- Student loan payments
- Minimum credit card payments (not the total balance)
- Child support or alimony payments
Note that daily living expenses like groceries, utilities, and gas are generally not included in the DTI calculation.
What is a Good DTI Ratio?
Lending standards vary by institution and loan type, but general guidelines are as follows:
- 35% or lower: This is considered excellent. You have manageable debt relative to your income, and lenders view you as a low-risk borrower. You will likely qualify for the best interest rates.
- 36% to 43%: This range is acceptable for many lenders, but you may be nearing the limit of what is considered affordable. Qualified Mortgages often require a DTI of 43% or lower.
- 44% to 49%: This is considered high risk. You may still find lenders willing to work with you, but you might face higher interest rates or be required to have a co-signer.
- 50% or higher: At this level, you are spending half your gross income on debt. Most mortgage lenders will decline applications with a DTI in this range, as it indicates significant financial stress.
Front-End vs. Back-End Ratio
When applying for a mortgage, lenders often look at two types of DTI ratios:
- Front-End Ratio: This only calculates your housing-related expenses (mortgage principal, interest, taxes, and insurance) divided by your gross income. Lenders typically prefer this to be under 28%.
- Back-End Ratio: This includes all your monthly debts (housing + cars + cards, etc.). This is the standard DTI calculated by the tool above, and lenders generally prefer this to be under 36% to 43%.
Strategies to Lower Your DTI
If your DTI is higher than 43%, consider these steps before applying for a major loan:
- Pay off high-interest debt: Eliminating a car payment or a credit card balance can significantly drop your monthly obligations.
- Increase your income: Taking on a side gig, freelance work, or asking for a raise increases the denominator in the equation, lowering your ratio.
- Avoid new debt: Do not open new credit lines or make large purchases on credit while preparing to apply for a mortgage.