Debt-to-Income Ratio Calculator

Calculate your debt-to-income ratio (DTI) to understand how lenders view your ability to manage monthly payments and repay debts. Your DTI ratio is a key factor in loan approvals.

Income Sources

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Monthly Debt Payments

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What is the Debt-to-Income Ratio?

The debt-to-income ratio (DTI) is a financial measure that compares your monthly debt payments to your gross monthly income. This ratio expresses the percentage of your income that goes toward paying debts and is an important metric that lenders use to evaluate your ability to manage monthly payments and repay debts.

Lenders typically prefer a lower DTI ratio because it suggests that you have a good balance between debt and income. Generally, a DTI ratio of 36% or less is considered healthy, while ratios above 43% may make it difficult to qualify for certain loans.

How to Calculate the Debt-to-Income Ratio

Calculating your debt-to-income ratio is straightforward once you know your monthly debt payments and gross monthly income. Here's the formula:

Debt-to-Income Ratio Formula

Where:

  • DTI = Your debt-to-income ratio, expressed as a percentage
  • Total Monthly Debt Payments = The sum of all your monthly debt obligations (mortgage/rent, car loans, student loans, credit cards, etc.)
  • Gross Monthly Income = Your total monthly income before taxes and other deductions

DTI Ratio Levels and What They Mean

Low DTI (≤ 36%)

0% - 36%

A DTI ratio of 36% or lower is generally considered good and indicates you have a healthy balance between debt and income, with sufficient income to cover your debts and other expenses.

Medium DTI (36% - 43%)

36% - 43%

A DTI ratio between 36% and 43% is manageable but indicates that a significant portion of your income is going toward debt payments. Some lenders may still approve loans in this range, but you might receive less favorable terms.

High DTI (> 43%)

Above 43%

A DTI ratio above 43% is considered high and may make it difficult to qualify for new loans, particularly mortgages. Lenders may view this as a sign that you're overextended financially and at higher risk of defaulting on payments.

How DTI Affects Your Loan Applications

  • Mortgage Approval: Most mortgage lenders prefer a DTI ratio of 43% or lower. Some conventional loans may require a DTI of 36% or less for the best terms.
  • Interest Rates: A lower DTI ratio may qualify you for lower interest rates, as lenders view you as a lower-risk borrower.
  • Loan Amount: Your DTI ratio can affect how much money you can borrow. A lower ratio typically means you can qualify for a larger loan amount.
  • Private Mortgage Insurance (PMI): If your DTI is on the higher end, you might be required to pay PMI, which protects the lender if you default on your mortgage payments.

How to Improve Your DTI Ratio

Increasing Your Income

  • Request a salary increase or promotion at your current job
  • Take on a part-time job or freelance work to supplement your income
  • Develop new skills to qualify for higher-paying positions

Reducing Your Debt

  • Pay off high-interest debt first to reduce your overall debt burden faster
  • Consider debt consolidation to potentially lower your monthly payments
  • Avoid taking on new debt while working to improve your DTI ratio

Important Notes

This calculator provides estimates based on the information you enter. Actual lender evaluations may include additional factors.

  • Different lenders may have different DTI requirements for loan approval. Government-backed loans like FHA loans might allow higher DTI ratios than conventional loans.
  • Your credit score is another important factor in loan approvals. Even with a good DTI ratio, a low credit score may affect your loan eligibility or interest rates.
  • Some lenders may calculate DTI differently, sometimes separating housing-related debt (front-end DTI) from all other debt (back-end DTI).