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. Lenders use this ratio to evaluate a borrower's ability to manage monthly payments and repay debts when qualifying for a mortgage.

2. How Does the Calculator Work?

The calculator uses the DTI formula:

Where:

• \( \text{Monthly Debts} \) — Total monthly debt payments (USD)
• \( \text{Monthly Income} \) — Gross monthly income before taxes (USD)

Explanation: The equation calculates what percentage of your monthly income goes toward debt payments.

3. Importance of DTI Calculation

Details: Most lenders prefer a DTI ratio below 36%, with no more than 28% of that debt going toward servicing a mortgage. A DTI ratio above 43% may make it difficult to qualify for a mortgage.

4. Using the Calculator

Tips: Include all monthly debt obligations (credit cards, car loans, student loans, etc.) and your gross monthly income (before taxes and other deductions). All values must be valid (income > 0).

5. Frequently Asked Questions (FAQ)

Q1: What's considered a good DTI ratio?
A: Generally, 36% or lower is excellent, 36-43% is acceptable but may limit loan options, and above 43% may disqualify you from most mortgages.

Q2: Does DTI include housing expenses?
A: For mortgage qualification, lenders look at both "front-end" (housing only) and "back-end" (all debts) DTI ratios.

Q3: What monthly debts should I include?
A: Include all recurring monthly debts: credit card minimums, auto loans, student loans, personal loans, alimony/child support, and any other ongoing obligations.

Q4: How can I improve my DTI ratio?
A: You can improve your ratio by paying down debts, increasing your income, or doing both. Avoid taking on new debt before applying for a mortgage.

Q5: Do lenders use gross or net income for DTI?
A: Lenders use gross income (before taxes) for DTI calculations, not your take-home pay.