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

2. How Does the Calculator Work?

The calculator uses the standard DTI formula:

Where:

• Total Monthly Debt — Sum of all monthly debt obligations (mortgage, car loans, credit cards, etc.)
• Gross Monthly Income — Total income before taxes and deductions

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. Lower DTI ratios indicate better financial health and make it easier to qualify for loans.

4. Using the Calculator

Tips: Enter all monthly debt payments and gross monthly income in dollars. Include all recurring debt obligations but not living expenses like utilities or groceries.

5. Frequently Asked Questions (FAQ)

Q1: What is a good DTI ratio?
A: Generally, 35% or lower is excellent, 36-49% is acceptable but may limit loan options, and 50% or higher is considered risky.

Q2: What debts should be included?
A: Include mortgage/rent, car payments, student loans, credit card minimums, personal loans, and any other recurring debt payments.

Q3: Does DTI include taxes and insurance?
A: For mortgage calculations, lenders typically include property taxes and insurance in the debt side of the ratio.

Q4: How can I improve my DTI ratio?
A: Pay down debts, increase your income, or do both. Avoid taking on new debt while trying to improve your ratio.

Q5: 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.