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 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 payments, student loans, and other recurring debt obligations
• Gross Monthly Income — Total income before taxes and other deductions

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

3. Importance of DTI Calculation

Details: Lenders use DTI to assess creditworthiness. A lower DTI indicates better financial health and makes qualifying for loans easier. Most lenders prefer DTI below 36%, with no more than 28% going toward housing expenses.

4. Using the Calculator

Tips: Enter all monthly debt obligations and total gross monthly income. Be sure to include all recurring debt payments for accurate results.

5. Frequently Asked Questions (FAQ)

Q1: What is a good DTI ratio?
A: Generally, 35% or lower is excellent, 36-43% is acceptable, and above 43% may make it harder to get loans.

Q2: What debts are included in DTI?
A: Include mortgage/rent, auto loans, student loans, credit card minimum payments, personal loans, and other recurring debt obligations.

Q3: What income is included in DTI?
A: Include all pre-tax income: salary, wages, tips, bonuses, alimony, child support, Social Security, and investment income.

Q4: How can I improve my DTI ratio?
A: Pay down debts, increase your income, avoid taking on new debt, or consider debt consolidation.

Q5: Is front-end or back-end DTI more important?
A: Lenders look at both. Front-end DTI includes only housing costs, while back-end DTI includes all debt obligations.