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 helps lenders evaluate a borrower's ability to manage monthly payments and repay debts.

2. How Does the Calculator Work?

The calculator uses the DTI formula:

Where:

• \( \text{Monthly Debts} \) — Sum of all monthly debt obligations (USD)
• \( \text{Monthly Income} \) — Gross monthly income before taxes (USD)

Explanation: The ratio shows what percentage of your income goes toward debt payments each month.

3. Importance of DTI Calculation

Details: Lenders use DTI to assess creditworthiness. A lower DTI indicates better financial health and increases approval chances for loans/mortgages. Most lenders prefer DTI below 36%, with no more than 28% going toward housing expenses.

4. Using the Calculator

Tips: Include all monthly debt payments (mortgage/rent, car loans, student loans, credit cards, etc.). Use gross income (before taxes/deductions). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's a good DTI ratio?
A: Generally, below 36% is good, 36-43% may be acceptable, and above 43% may limit borrowing options.

Q2: What debts should be included?
A: Include all recurring monthly debts: mortgage/rent, auto loans, student loans, credit card minimums, alimony, etc.

Q3: Should I use gross or net income?
A: Lenders use gross income (before taxes/deductions) for DTI calculations.

Q4: How can I improve my DTI?
A: Either reduce debt (pay down balances) or increase income. Refinancing to lower payments can also help.

Q5: Does DTI affect credit score?
A: No, but the factors that affect DTI (debt levels) do impact credit utilization, which affects credit scores.