Determine your borrowing power for mortgages and loans.
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Monthly Debt Obligations
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Your DTI Ratio
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function calculateDTI() {
// Get Input Values
var income = document.getElementById('monthlyIncome').value;
var housing = document.getElementById('housingCost').value;
var car = document.getElementById('carPayment').value;
var loans = document.getElementById('studentLoans').value;
var cards = document.getElementById('creditCards').value;
var other = document.getElementById('otherDebt').value;
// Parse Float and Handle Empty Strings
var incomeVal = parseFloat(income);
var housingVal = housing === "" ? 0 : parseFloat(housing);
var carVal = car === "" ? 0 : parseFloat(car);
var loansVal = loans === "" ? 0 : parseFloat(loans);
var cardsVal = cards === "" ? 0 : parseFloat(cards);
var otherVal = other === "" ? 0 : parseFloat(other);
// Validation
if (isNaN(incomeVal) || incomeVal <= 0) {
alert("Please enter a valid positive number for Monthly Gross Income.");
return;
}
// Calculate Total Debt
var totalDebt = housingVal + carVal + loansVal + cardsVal + otherVal;
// Calculate DTI
var dtiDecimal = totalDebt / incomeVal;
var dtiPercent = dtiDecimal * 100;
// Display Logic
var resultBox = document.getElementById('resultBox');
var dtiDisplay = document.getElementById('dtiResult');
var messageDisplay = document.getElementById('dtiMessage');
var summaryDisplay = document.getElementById('dtiSummary');
resultBox.style.display = "block";
dtiDisplay.innerHTML = dtiPercent.toFixed(2) + "%";
// Determine Status
if (dtiPercent 35 && dtiPercent <= 43) {
messageDisplay.className = "dti-status status-warning";
messageDisplay.innerHTML = "Manageable";
summaryDisplay.innerHTML = "Your DTI is acceptable but getting high. You may still qualify for loans, but terms might not be the absolute best.";
} else {
messageDisplay.className = "dti-status status-danger";
messageDisplay.innerHTML = "High Risk";
summaryDisplay.innerHTML = "Your DTI is above the 43% threshold typically required for a Qualified Mortgage. Consider paying down debt before applying.";
}
}
What is the Debt-to-Income (DTI) Ratio?
The Debt-to-Income (DTI) ratio is a personal finance measure that compares an individual's monthly debt payment to their monthly gross income. Lenders use this ratio to assess your ability to manage monthly payments and repay debts. It is one of the primary factors used when determining approval for mortgages, auto loans, and personal lines of credit.
Why is DTI Important?
Your DTI ratio helps lenders determine the level of risk associated with lending to you. 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.
Below 36%: Generally considered excellent. Lenders view you as responsible and financially stable.
36% – 43%: Often considered acceptable. You may still qualify for loans, but you might be asked for additional documentation or receive higher interest rates.
Above 43%: Considered high risk. Most lenders will not approve a Qualified Mortgage if your DTI exceeds this limit, as it suggests potential difficulty in meeting monthly obligations.
Front-End vs. Back-End Ratio
There are two types of DTI ratios that lenders look at:
1. Front-End Ratio: This only calculates the percentage of your income that goes toward housing costs (rent or mortgage, property taxes, and insurance). Lenders typically prefer this to be under 28%.
2. Back-End Ratio: This includes housing costs plus all other recurring monthly debt (credit cards, student loans, car payments). This is the number calculated by the tool above and is generally the more critical metric for loan approval.
How to Lower Your DTI Ratio
If your DTI is higher than 43%, consider these strategies before applying for a major loan:
Increase Monthly Payments: Pay more than the minimum on credit cards to reduce the principal balance faster.
Avoid New Debt: Do not open new credit lines or make large purchases on credit prior to a loan application.
Refinance Loans: Look into refinancing high-interest loans to lower the monthly payment amount, though be careful this doesn't cost more in the long run.
Increase Income: While harder to achieve immediately, a raise, side hustle, or co-borrower can increase the denominator of the ratio, lowering the percentage.