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. For home loans, it helps lenders assess a borrower's ability to manage monthly payments.

2. How Does the Calculator Work?

The calculator uses the DTI formula:

Where:

• \( Debt \) — Monthly debt payments (credit cards, car loans, etc.)
• \( Home\ Loan\ Payment \) — Proposed or current monthly mortgage payment
• \( Income \) — Monthly gross income (before taxes)

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 evaluate creditworthiness. Most lenders prefer a DTI below 36%, with no more than 28% of that debt going toward housing.

4. Using the Calculator

Tips: Enter all monthly amounts in the same currency. Include all debt obligations (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. Some lenders may accept up to 43% for qualified borrowers.

Q2: Does DTI include taxes and insurance?
A: For mortgage purposes, yes - the home loan payment should include principal, interest, taxes, and insurance (PITI).

Q3: How can I improve my DTI ratio?
A: Pay down existing debt, increase your income, or consider a less expensive home to lower the mortgage payment.

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 rental income count toward DTI?
A: Yes, if you can document consistent rental income, lenders may count a portion of it toward your total income.