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:

• Monthly Debt Payments — Sum of all monthly debt obligations (credit cards, loans, mortgages, etc.)
• Monthly Gross 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 typically prefer a DTI ratio below 36%, with no more than 28% of that debt going toward mortgage payments. A DTI above 43% may make it difficult to qualify for new loans.

4. Using the Calculator

Tips: Include all monthly debt obligations (mortgage/rent, car loans, student loans, credit cards, etc.) and your total pre-tax income from all sources.

5. Frequently Asked Questions (FAQ)

Q1: What is a good DTI ratio?
A: Generally, 36% or lower is excellent, 37-42% is acceptable but may limit loan options, and 43%+ may disqualify you from many loans.

Q2: How can I improve my DTI ratio?
A: You can either increase your income, decrease your debt, or both. Paying down credit cards and other loans is the most direct way.

Q3: Does rent count toward DTI?
A: Yes, rent payments are included in your monthly debt obligations when calculating DTI.

Q4: What's the difference between front-end and back-end DTI?
A: Front-end DTI only includes housing costs, while back-end DTI includes all debt obligations.

Q5: Do lenders look at gross or net income for DTI?
A: Lenders typically use gross income (before taxes) when calculating DTI ratios.