1. What is Debt-to-Income Ratio?

The Debt-to-Income (DTI) ratio is a personal finance measure that compares an individual's monthly debt payments to their gross monthly income. It's expressed as a percentage and is used by lenders to assess a borrower's ability to manage monthly payments and repay debts.

2. How Does the Calculator Work?

The calculator uses the DTI formula:

Where:

• Total Monthly Debt Payments — Includes mortgage/rent, car loans, credit card minimums, student loans, and other recurring debt obligations
• Gross Monthly Income — Total income before taxes and other deductions

Explanation: The ratio shows what portion of income goes toward debt repayment each month.

3. Importance of DTI Calculation

Details: Lenders use DTI to evaluate creditworthiness. Generally, a DTI below 36% is good, 36-43% may limit borrowing options, and above 43% may disqualify you for many loans.

4. Using the Calculator

Tips: Enter all monthly debt payments and your total gross (pre-tax) monthly income. Be sure to include all recurring debt obligations for accurate results.

5. Frequently Asked Questions (FAQ)

Q1: What's considered a good DTI ratio?
A: Generally, below 36% is good, with no more than 28% going toward housing expenses. Below 20% is excellent.

Q2: Does DTI include utilities and insurance?
A: No, only debt payments like loans and credit cards. Living expenses aren't included in standard DTI calculations.

Q3: How can I improve my DTI ratio?
A: Either increase your income or reduce your debt. Paying down balances or consolidating high-interest debt can help.

Q4: Is front-end or back-end DTI more important?
A: Lenders look at both. Front-end considers just housing costs, while back-end includes all debt obligations.

Q5: Does DTI affect credit score?
A: Not directly, as credit bureaus don't know your income. However, high credit utilization (a component of credit scores) often correlates with high DTI.