1. What is Debt to Income Ratio (DTI)?

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 helps lenders evaluate a borrower's ability to manage monthly payments.

2. How Does the Calculator Work?

The calculator uses the DTI formula:

Where:

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

Explanation: The ratio shows what portion of income goes toward debt repayment each month.

3. Importance of DTI Calculation

Details: Lenders use DTI to assess creditworthiness. Lower DTI ratios indicate better financial health and make loan approval more likely.

4. Using the Calculator

Tips: Enter all monthly debt obligations and total gross monthly income. Include recurring debts like rent/mortgage, car payments, student loans, and minimum credit card payments.

5. Frequently Asked Questions (FAQ)

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

Q2: 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.

Q3: How can I improve my DTI ratio?
A: Either increase your income or reduce your monthly debt payments by paying down balances.

Q4: Does DTI include utilities and living expenses?
A: No, only recurring debt payments are included in DTI calculations.

Q5: Why do lenders care about DTI?
A: It helps them assess whether you can handle additional monthly payments without financial stress.