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)
• \( Mortgage\ Payment \) — Proposed or current monthly mortgage payment
• \( Income \) — Gross monthly income before taxes

Explanation: The equation calculates what percentage of your monthly income goes toward debt payments, including your mortgage.

3. Importance of DTI Calculation

Details: Most lenders prefer a DTI ratio below 36%, with no more than 28% of that debt going toward servicing your mortgage. A DTI ratio above 43% may make it difficult to qualify for a mortgage.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's a good DTI ratio for mortgage approval?
A: Ideally below 36%, with mortgage DTI below 28%. Some lenders may accept up to 43-50% with strong compensating factors.

Q2: Does DTI include taxes and insurance?
A: For mortgage DTI, include PITI (Principal, Interest, Taxes, and Insurance) in your mortgage payment amount.

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

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

Q5: Does DTI affect credit score?
A: No, but the debts included in DTI calculation do affect your credit utilization which impacts your score.