Debt-to-Income (DTI) Ratio Calculator
Calculate your DTI to see if you qualify for a mortgage or loan.
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Your Debt-to-Income Ratio is:
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What is Debt-to-Income (DTI) Ratio?
Your Debt-to-Income (DTI) ratio is a personal finance measure that compares the amount of debt you have to your overall income. Lenders, including mortgage banks and credit card issuers, use this ratio to measure your ability to manage your monthly payments and repay the money you plan to borrow.
A low DTI ratio demonstrates a good balance between debt and income. Conversely, a high DTI ratio can signal that an individual has too much debt for the amount of income earned.
How is DTI Calculated?
The formula for calculating your DTI is straightforward. It is the sum of your monthly debt payments divided by your gross monthly income.
- Gross Monthly Income: This is the total money you earn before taxes and other deductions. It includes salary, bonuses, alimony, and other regular income sources.
- Monthly Debt Payments: This includes rent or mortgage payments, car loans, student loans, credit card minimum payments, and other regular debt obligations. It generally does not include monthly utilities like water, electricity, or internet unless they are in collections.
Formula: (Total Monthly Debt / Gross Monthly Income) × 100 = DTI %
Understanding Your Results
Different lenders have different requirements, but general guidelines typically categorize DTI ratios as follows:
- 35% or Less: This is considered excellent. You likely have manageable debt relative to your income and are seen as a safe bet by lenders.
- 36% to 42%: This range is manageable but getting tighter. You may still qualify for loans, but lenders might ask for more documentation or offer slightly higher interest rates.
- 43% or Higher: This is often the cut-off for "Qualified Mortgages." A DTI above 43% suggests you may struggle to make monthly payments if any financial emergency arises. Many lenders may deny applications with a DTI in this range.
Why the 43% DTI Rule Matters
The 43% debt-to-income ratio is crucial because, in most cases, it is the highest ratio a borrower can have and still get a Qualified Mortgage. Qualified Mortgages are loans with certain stable features that help make it more likely that you'll be able to afford your loan. If your DTI is higher than this, obtaining a traditional mortgage becomes significantly more difficult.
How to Lower Your DTI Ratio
If your calculation shows a high percentage, consider these strategies to improve your standing before applying for a major loan:
- Increase Your Income: Taking on a side gig, asking for a raise, or including a co-borrower can increase the denominator in the equation, lowering the ratio.
- Pay Down Debt: Focus on paying off debts with high monthly payments. Even paying off a small credit card balance completely can remove a monthly minimum payment from the calculation.
- Avoid New Debt: Do not open new credit lines or make large purchases on credit before applying for a mortgage.