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

2. How DTI is Calculated

The DTI ratio is calculated using the following formula:

Where:

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

3. Importance of DTI Ratio

Details: Lenders use DTI to assess loan eligibility. Generally:

• ≤36%: Ideal for most loans
• 36-43%: May qualify but with stricter requirements
• >43%: Often considered too high for qualified mortgages

4. Using the Calculator

Tips:

• Include all recurring monthly debts (minimum payments for credit cards)
• Use gross income (before taxes)
• For annual income, divide by 12 for monthly amount

5. Frequently Asked Questions (FAQ)

Q1: What's included in monthly debt?
A: Include mortgage/rent, auto loans, student loans, credit card minimum payments, alimony, child support, and other recurring debts.

Q2: What income sources should be included?
A: Include all pre-tax income: wages, salaries, tips, bonuses, Social Security, disability, alimony, child support, and investment income.

Q3: What's a good DTI ratio?
A: Below 36% is ideal, with no more than 28% going to housing expenses. Some loans allow up to 50% DTI with strong compensating factors.

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

Q5: Does DTI affect credit score?
A: While DTI itself isn't in credit reports, credit utilization (part of DTI) affects 30% of your FICO score.