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 DTI to 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:

• \( Debt \) — Total monthly debt payments (excluding mortgage)
• \( Mortgage \) — Monthly mortgage payment
• \( Income \) — Gross monthly income (before taxes)

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 mortgage payments. The maximum DTI ratio varies by lender and loan type.

4. Using the Calculator

Tips: Enter all monthly amounts in the same currency. Include all recurring debt payments (credit cards, car loans, student loans, etc.) and your gross (pre-tax) income.

5. Frequently Asked Questions (FAQ)

Q1: What is a good DTI ratio for a mortgage?
A: Generally, 36% or lower is ideal, though some lenders may accept up to 43% for qualified borrowers.

Q2: Does DTI include taxes and insurance?
A: For mortgage calculations, the housing portion of DTI typically includes principal, interest, taxes, and insurance (PITI).

Q3: How can I improve my DTI ratio?
A: You can improve your DTI by increasing income, paying down debts, or avoiding new debt obligations.

Q4: Is front-end or back-end DTI more important?
A: Lenders look at both. Front-end DTI considers only housing costs, while back-end DTI includes all debt obligations.

Q5: Does rent count toward DTI?
A: Current rent doesn't count as debt, but lenders may consider it when evaluating your ability to make mortgage payments.