1. What is Debt-to-Income Ratio (DTI)?

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 is used by lenders to assess a borrower's ability to manage monthly payments and repay debts.

2. How Does the Calculator Work?

The calculator uses the DTI formula:

Where:

• \( Debt \) — Total monthly debt payments
• \( Income \) — Total monthly gross income

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

3. Importance of DTI Calculation

Details: Lenders use DTI to evaluate creditworthiness. A lower DTI shows better balance between debt and income. Most lenders prefer DTI below 36%, with no more than 28% going toward housing expenses.

4. Using the Calculator

Tips: Enter all monthly debt payments (mortgage/rent, car loans, credit cards, student loans, etc.) and your total monthly gross income (before taxes and other deductions).

5. Frequently Asked Questions (FAQ)

Q1: What's a good DTI ratio?
A: Ideal is below 36%, with max 28% for housing. 36-43% may still qualify but with stricter requirements. Above 50% is typically too high.

Q2: What debts are included in DTI?
A: Include all recurring monthly debts: mortgage/rent, auto loans, student loans, credit card minimums, personal loans, alimony/child support.

Q3: What income is counted for DTI?
A: Gross monthly income from all sources before taxes: salary, bonuses, commissions, alimony, Social Security, disability, retirement, investment income.

Q4: How can I improve my DTI?
A: Pay down debts, increase income, avoid taking on new debt, or do both simultaneously for fastest improvement.

Q5: Is front-end or back-end DTI more important?
A: Lenders look at both. Front-end only includes housing costs, while back-end includes all debt. Both are important for mortgage qualification.