1. What is Debt-to-Income Ratio (DTI)?

The Debt-to-Income (DTI) ratio is a personal finance measure that compares an individual's monthly debt payments to their gross monthly income. Lenders use DTI to evaluate a borrower's ability to manage monthly payments and repay debts.

2. How is DTI Calculated?

The DTI formula is:

Where:

• Total Monthly Debt Payments — Includes mortgage/rent, auto loans, student loans, credit card minimum payments, and other recurring debts
• Gross Monthly Income — Your total income before taxes and other deductions

3. Why DTI Matters for Mortgages

Details: Most lenders prefer a DTI ratio of 36% or less, with no more than 28% of that debt going toward housing expenses. Some lenders may accept higher ratios with compensating factors.

DTI Categories:

• ≤35%: Excellent - Likely to qualify for most loans
• 36%-43%: Good - May qualify but might face restrictions
• 44%-49%: Fair - May need compensating factors
• ≥50%: Poor - Unlikely to qualify for most loans

4. Using the Calculator

Tips: Enter all your monthly debt obligations and your total pre-tax monthly income. Include all sources of income if applying jointly.

5. Frequently Asked Questions (FAQ)

Q1: What debts are included in DTI?
A: Include all recurring monthly debts: mortgage/rent, car payments, student loans, credit card minimums, personal loans, alimony/child support.

Q2: What income is counted for DTI?
A: Gross (pre-tax) income from all sources including salary, bonuses, commissions, alimony, retirement income, and rental income.

Q3: What's the maximum DTI for a mortgage?
A: Conventional loans typically max at 43% DTI. FHA loans may allow up to 50% with strong compensating factors.

Q4: How can I improve my DTI ratio?
A: Pay down debts, increase your income, or consider a smaller mortgage. Avoid taking on new debt before applying for a mortgage.

Q5: Does DTI include utilities and insurance?
A: No, only debt payments count toward DTI. However, lenders may consider other expenses in overall affordability assessment.