1. What is Debt-to-Income Ratio?

The Debt-to-Income (DTI) ratio measures your monthly debt payments against your gross monthly income. It's a key metric lenders use to assess your ability to manage monthly payments and repay debts, particularly for home loans.

2. How Does the Calculator Work?

The calculator uses the DTI formula:

Where:

• \( debt \) — Total monthly debt payments (credit cards, car loans, etc.)
• \( home\ loan \) — Proposed or current monthly mortgage payment
• \( income \) — Gross monthly income before taxes

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

3. Importance of DTI Calculation

Details: Lenders typically prefer a DTI below 36%, with no more than 28% of that debt going toward your mortgage. A lower DTI indicates better financial health and increases loan approval chances.

4. Using the Calculator

Tips: Enter all amounts in the same currency (typically monthly amounts). Include all debt obligations and your total gross income. The calculator will show your DTI percentage.

5. Frequently Asked Questions (FAQ)

Q1: What's a good DTI ratio for mortgage approval?
A: Most lenders prefer ≤36% DTI, with ≤28% for the mortgage payment alone. Some loans allow up to 43-50% with strong compensating factors.

Q2: Does DTI include taxes and insurance?
A: For mortgages, yes - lenders use PITI (Principal, Interest, Taxes, and Insurance) in the home loan portion of DTI.

Q3: How can I improve my DTI ratio?
A: Either increase your income, pay down existing debts, or reduce the size of the home loan you're seeking.

Q4: Is gross or net income used for DTI?
A: Lenders use gross (pre-tax) income for DTI calculations.

Q5: What debts are included in DTI?
A: All recurring monthly debts: credit cards, car loans, student loans, personal loans, alimony/child support, and the proposed mortgage.