How to Calculate My Debt to Income Ratio

Debt-to-Income Ratio Calculator

function calculateDTI() { var monthlyGrossIncome = parseFloat(document.getElementById('monthlyGrossIncome').value); var totalMonthlyDebt = parseFloat(document.getElementById('totalMonthlyDebt').value); var dtiResultDiv = document.getElementById('dtiResult'); if (isNaN(monthlyGrossIncome) || isNaN(totalMonthlyDebt) || monthlyGrossIncome < 0 || totalMonthlyDebt < 0) { dtiResultDiv.innerHTML = "Please enter valid positive numbers for all fields."; return; } if (monthlyGrossIncome === 0) { dtiResultDiv.innerHTML = "Monthly gross income cannot be zero. Please enter a valid income."; return; } var dtiRatio = (totalMonthlyDebt / monthlyGrossIncome) * 100; dtiResultDiv.innerHTML = dtiRatio.toFixed(2) + "%"; }

Understanding Your Debt-to-Income Ratio (DTI)

Your Debt-to-Income Ratio (DTI) is a crucial financial metric that lenders use to assess your ability to manage monthly payments and repay debts. It compares the amount of money you owe each month to the amount of money you earn. A lower DTI indicates a lower risk to lenders, making it easier to qualify for loans, mortgages, or other credit products.

What is Included in Your DTI?

To calculate your DTI, you'll need two main figures:

1. Total Monthly Gross Income: This is your total income before taxes, deductions, or expenses are taken out. It includes your salary, wages, tips, commissions, bonuses, and any other regular income sources.
2. Total Monthly Debt Payments: This includes all recurring monthly debt obligations. Common examples are:
   • Mortgage payments or rent (if applicable)
   • Car loan payments
   • Student loan payments
   • Minimum credit card payments
   • Personal loan payments
   • Alimony or child support payments
   It generally does NOT include utility bills, groceries, or other living expenses.

How to Calculate Your DTI

The formula for DTI is straightforward:

DTI = (Total Monthly Debt Payments / Monthly Gross Income) * 100

For example, if your total monthly gross income is $5,000 and your total monthly debt payments are $1,500 (e.g., $1,000 for mortgage, $300 for a car loan, and $200 for credit card minimums), your DTI would be:

DTI = ($1,500 / $5,000) * 100 = 30%

What is a Good DTI Ratio?

Lenders typically look for specific DTI ranges, though these can vary by loan type and lender:

• Below 36%: Generally considered excellent. You're likely to qualify for most loans with favorable terms.
• 36% – 43%: Still considered good. You may qualify for many loans, but some lenders might have stricter requirements.
• Above 43%: This is often the maximum DTI ratio for many conventional mortgages. Lenders may view you as a higher risk, and qualifying for new credit might be challenging.
• Above 50%: Indicates a high debt burden. It can be very difficult to obtain new credit, and you might want to focus on reducing your debt.

Why is Your DTI Important?

Knowing your DTI helps you:

• Assess Financial Health: It provides a clear picture of how much of your income is consumed by debt.
• Plan for Major Purchases: Before applying for a mortgage or a large loan, calculating your DTI can help you understand your chances of approval.
• Identify Areas for Improvement: If your DTI is high, it signals that you might need to reduce debt or increase income to improve your financial standing.

Use the calculator above to quickly determine your Debt-to-Income Ratio and take the first step towards better financial planning.