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 is used by lenders to assess a borrower's ability to manage monthly payments.

2. How DTI is Calculated

The DTI ratio is calculated using this simple formula:

Where:

• Total Monthly Debt Payments — Includes mortgage/rent, car loans, credit card payments, student loans, etc.
• Gross Monthly Income — Income before taxes and other deductions

Example: If your monthly debt is $1,500 and your gross monthly income is $5,000, your DTI ratio would be (1500/5000) × 100 = 30%.

3. Importance of DTI Ratio

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

4. Using the Calculator

Tips: Include all recurring monthly debt obligations in the debt field. For income, use your pre-tax monthly income from all sources. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What debts should be included?
A: Include all recurring monthly debt payments - mortgage/rent, car loans, student loans, credit card minimum payments, personal loans, etc.

Q2: What income should be included?
A: Include all pre-tax income - wages, salaries, tips, bonuses, alimony, child support, rental income, etc.

Q3: What is a good DTI ratio?
A: Generally, below 36% is ideal, with no more than 28% going toward housing expenses. Above 43% is often a red flag for lenders.

Q4: How can I improve my DTI ratio?
A: Either increase your income or reduce your debt. Paying down balances or consolidating debts can help lower monthly payments.

Q5: Does DTI affect credit score?
A: While DTI itself isn't in credit scores, high credit utilization (part of DTI) can lower scores. Lenders consider both credit score and DTI.