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 helps lenders evaluate a borrower's ability to manage monthly payments.

2. How Does the Calculator Work?

The calculator uses the DTI formula:

Where:

• Monthly Debt Payments — Sum of all monthly debt obligations (mortgage, car loans, credit cards, etc.)
• Gross Monthly Income — Total income before taxes and 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 qualifying for loans easier. Most lenders prefer DTI below 36%, with no more than 28% going toward housing expenses.

4. Using the Calculator

Tips: Include all monthly debt obligations (mortgage/rent, auto loans, student loans, credit card minimums, etc.) and your total pre-tax income from all sources.

5. Frequently Asked Questions (FAQ)

Q1: What's a good DTI ratio?
A: Generally, 35% or lower is excellent, 36%-49% is acceptable but may limit loan options, and 50% or higher means you might struggle to get loans.

Q2: What debts are included in DTI?
A: Include all recurring monthly debts: mortgage/rent, car payments, student loans, personal loans, credit card minimums, alimony/child support.

Q3: What income is counted for DTI?
A: All pre-tax income including wages, bonuses, commissions, alimony, retirement income, rental income, and other verifiable income sources.

Q4: How can I improve my DTI ratio?
A: Either increase your income (side jobs, raises), decrease your debt (pay down balances), or both.

Q5: Is DTI the same as credit utilization?
A: No, credit utilization looks at credit card balances relative to limits, while DTI compares all debt payments to income.