Debt-to-Income (DTI) Calculator

Quickly assess your financial leverage. This DTI calculator shows you what percentage of your income goes to debt payments, a key metric used by lenders for mortgage and loan qualification.

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Debt-to-Income Ratio

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What is a Debt-to-Income (DTI) Ratio?

Your **Debt-to-Income (DTI) Ratio** is a critical financial metric that compares your total monthly debt payments to your total gross monthly income. This figure, expressed as a percentage, is one of the primary ways lenders (especially mortgage lenders) measure your ability to manage monthly payments and repay a new loan. A low DTI ratio shows a good balance between debt and income, while a high DTI ratio can signal that you have too much debt for your income level.

The Formula for Debt-to-Income Ratio

The calculation is a straightforward percentage. You simply divide your total recurring monthly debt by your gross monthly income and multiply by 100.

DTI (%) = (Total Monthly Debt / Gross Monthly Income) × 100

  • Total Monthly Debt: This includes rent/mortgage, car loans, student loans, credit card minimum payments, personal loans, and any other required monthly debt payments.
  • Gross Monthly Income: This is your total income *before* any taxes, 401(k) contributions, or other deductions are taken out.

Solved Example

Let's use the calculator's default values to see how it works:

  • Gross Monthly Income: $8,000
  • Total Monthly Debt Payments: $2,500

Calculation:

DTI (%) = ($2,500 / $8,000) × 100

DTI (%) = 0.3125 × 100

DTI = 31.25%

This DTI of 31.25% is considered "Ideal" by most lenders, indicating strong financial health and a high likelihood of being approved for new credit, such as a mortgage.

Practical Applications & Use Cases

Calculating your DTI is essential for several reasons:

  • Mortgage Qualification: This is the number one reason to know your DTI. Most lenders use a "28/36" rule (your housing costs should be <28% of income, and total debt <36%). The 43% DTI ratio is generally the highest a borrower can have and still get a "Qualified Mortgage."
  • Loan Applications: When applying for a car loan, personal loan, or student loan, lenders will check your DTI to determine your risk level and how much they are willing to lend you.
  • Financial Health Check: Your DTI is a simple report card for your finances. If your DTI is creeping up, it's an early warning sign that your debt is growing faster than your income, and you should take steps to pay it down or reduce spending.

Lender Benchmarks for DTI Ratio

While different lenders have different rules, these are the general benchmarks used to evaluate your DTI ratio:

  • 36% or less (Ideal): You are in a strong financial position. Lenders see you as a low-risk borrower and you should have no trouble qualifying for new loans.
  • 37% to 43% (Manageable): This is a common range for many homeowners. You can still qualify for loans (especially mortgages, which often cap at 43%), but you may not get the most competitive interest rates.
  • 44% to 49% (Concerning): Lenders will be very cautious. You may be denied for new credit or be required to provide a larger down payment. It's a sign you need to focus on paying down debt.
  • 50% or more (High Risk): It is highly unlikely you will be approved for new credit. More than half of your income is going to debt payments, which is considered financially dangerous by lenders.

Frequently Asked Questions (FAQ)

1. What is a good DTI ratio?

Lenders generally prefer a DTI ratio below 36%. A DTI ratio of 43% is typically the highest most lenders will accept for a qualified mortgage. Ratios are often categorized as: 36% or less (Ideal), 37% to 43% (Manageable), 44% to 49% (Concerning), and 50% or more (High Risk).

2. What debts are included in DTI?

DTI includes all of your monthly debt payments. This typically covers: mortgage or rent payments, car loan payments, student loan payments, credit card *minimum* monthly payments, personal loan payments, and alimony or child support payments.

3. Does DTI use gross or net income?

DTI is calculated using your gross monthly income. This is your total income *before* any taxes, deductions, or insurance premiums are taken out.

If your DTI is high, a good next step is to create a plan to pay down your debts. Use our Credit Card Payoff Calculator to see how you can accelerate your debt-free journey.

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