Debt-to-Income Ratio Calculator
Calculate your DTI to assess your mortgage eligibility and financial health.
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Your Debt-to-Income Ratio is:
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Total Monthly Debt: $0
Gross Monthly Income: $0
What is a Debt-to-Income (DTI) Ratio?
Your Debt-to-Income (DTI) ratio is one of the most significant metrics lenders use to evaluate your creditworthiness. It compares your total monthly debt payments to your monthly gross income (income before taxes and deductions). Essentially, it helps financial institutions understand how much of your income is already spoken for by debts and how much is available to take on new liabilities, such as a mortgage or car loan.
Why Does DTI Matter?
While your credit score measures your history of paying bills, your DTI ratio measures your ability to pay. A lower DTI ratio demonstrates to lenders that you have a good balance between debt and income. Conversely, a high DTI ratio suggests that you may be overextended, making you a higher risk for defaulting on a loan.
Lenders specifically look at two types of DTI ratios:
- Front-End Ratio: The percentage of income that goes toward housing costs (rent/mortgage, insurance, property taxes).
- Back-End Ratio: The percentage of income that goes toward all recurring debt payments, including housing, credit cards, student loans, and car payments. This calculator focuses on the Back-End Ratio, which is the standard metric for total financial health.
How to Calculate DTI
The formula for calculating your Debt-to-Income ratio is relatively straightforward. You sum up all your recurring monthly debt payments and divide that number by your gross monthly income. Finally, multiply the result by 100 to get a percentage.
Example Calculation
Imagine you have the following finances:
- Gross Monthly Income: $6,000
- Mortgage/Rent: $1,500
- Car Loan: $400
- Student Loans: $200
- Credit Cards: $100
Total Monthly Debt: $1,500 + $400 + $200 + $100 = $2,200
Calculation: ($2,200 / $6,000) x 100 = 36.67%
Interpreting Your DTI Score
Different lenders have different requirements, but general guidelines are as follows:
- 35% or less: Excellent. You have manageable debt relative to your income. Lenders view you as a responsible borrower with plenty of disposable income.
- 36% to 43%: Good to Manageable. This is often the "sweet spot" for getting approved for mortgages. Specifically, 43% is often the highest DTI ratio a borrower can have and still get a Qualified Mortgage.
- 44% to 49%: Concerning. You may find it difficult to get approved for loans, or you may be offered higher interest rates. You are nearing a level of financial stress.
- 50% or higher: High Risk. With half your income going to debt, you have very little room for unexpected expenses. Most lenders will deny loan applications at this level.
Tips to Lower Your DTI Ratio
If your ratio is higher than you'd like, consider these strategies before applying for a major loan:
- Increase your payments: Pay more than the minimum on your credit cards to reduce the principal faster.
- Avoid new debt: Do not take on new loans or charge large amounts to credit cards while trying to lower your ratio.
- Increase your income: Taking on freelance work, asking for a raise, or working overtime increases the denominator in the calculation, instantly lowering your DTI ratio even if debt remains constant.