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 and repay debts.

2. How Does the Calculator Work?

The calculator uses the DTI formula:

Where:

• Total Monthly Debt — Sum of all monthly debt obligations (mortgage, auto loans, credit cards, etc.)
• Monthly Income — Gross monthly income before taxes and deductions

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

3. Importance of DTI Calculation

Details: Lenders use DTI to evaluate mortgage applications. Generally, a DTI below 36% is good, with no more than 28% going toward housing expenses. A DTI above 43% may make it harder to qualify for a mortgage.

4. Using the Calculator

Tips: Enter all monthly debt payments and gross monthly income in dollars. Both values must be positive numbers, with income greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What counts as monthly debt?
A: Include all recurring debt payments: mortgage/rent, auto loans, student loans, credit card minimum payments, alimony, child support, and other loan obligations.

Q2: What's included in monthly income?
A: Include all pre-tax income: wages, salaries, tips, bonuses, Social Security, disability, alimony, child support, and investment income.

Q3: What DTI do lenders prefer?
A: Most lenders prefer DTI below 36%, with no more than 28% for housing. Some loans allow up to 50% DTI with strong compensating factors.

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

Q5: Does DTI include living expenses?
A: No, DTI only includes debt obligations, not expenses like utilities, groceries, or insurance that aren't considered debts.