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 monthly gross income. It's expressed as a percentage and helps lenders evaluate 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 — Sum of all monthly debt obligations (mortgage/rent, car loans, credit cards, student loans, etc.)
• Gross Monthly Income — Total income before taxes and other deductions

Explanation: The ratio shows what percentage of your income goes toward debt payments each month.

3. Importance of DTI Ratio

Details: Lenders use DTI to assess creditworthiness. Lower DTI ratios indicate better financial health and make loan approval more likely. Most lenders prefer DTI below 36%, with no more than 28% going toward mortgage payments.

4. Using the Calculator

Tips: Include all recurring monthly debts (minimum payments for credit cards). For income, use pre-tax amounts from all sources (salary, bonuses, alimony, etc.).

5. Frequently Asked Questions (FAQ)

Q1: What is a good DTI ratio?
A: Ideal is ≤36%, with ≤28% for housing. 36%-43% may still qualify but with stricter requirements. Above 43% is generally too high for qualified mortgages.

Q2: Does rent count in DTI?
A: Yes, rent payments are included in the "debt" portion if you're applying for a mortgage.

Q3: How can I improve my DTI ratio?
A: Pay down debts, increase your income, or do both. Avoid taking on new debt before applying for loans.

Q4: Is DTI calculated before or after taxes?
A: DTI uses gross (pre-tax) income, not net take-home pay.

Q5: What debts are excluded from DTI?
A: Utilities, insurance, and discretionary spending aren't included, though lenders may consider these in overall budgeting.