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 gross monthly 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:

• Total Monthly Debt Payments — 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 Ratio

Details: Lenders use DTI to assess creditworthiness. Lower ratios indicate better financial health. Most lenders prefer DTI below 36%, with no more than 28% going toward housing expenses.

4. Using the Calculator

Tips: Include all recurring monthly debts (mortgage/rent, car payments, student loans, credit card minimums, etc.) and your total pre-tax income from all sources.

5. Frequently Asked Questions (FAQ)

Q1: What's a good DTI ratio?
A: Generally, below 36% is good, with no more than 28% for housing. Below 20% is excellent, while above 43% may limit loan options.

Q2: Does DTI include utilities and insurance?
A: No, only debt obligations (loans, credit cards, etc.). Living expenses aren't included in DTI calculations.

Q3: How can I improve my DTI ratio?
A: Increase income, pay down debts, avoid taking on new debt, or consolidate existing debts to lower monthly payments.

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

Q5: Does DTI affect credit score?
A: Not directly, but high DTI may lead to higher credit utilization, which can lower your score.