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 used by lenders to 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 Calculation

Details: Lenders use DTI to assess creditworthiness. Generally, a DTI below 36% is good, 36-43% may limit loan options, and above 43% may make it difficult to qualify for loans.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's considered a good DTI ratio?
A: Generally, below 36% is good, with no more than 28% going toward housing expenses. Below 20% is excellent.

Q2: Does DTI include living expenses?
A: No, only debt payments. Expenses like utilities, groceries, and insurance aren't included in DTI calculations.

Q3: How can I improve my DTI ratio?
A: Either increase your income or reduce your debt. Paying down balances or consolidating debts can help lower your ratio.

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

Q5: Does rent count in DTI?
A: Current rent isn't included as debt, but mortgage payments would be. Future housing costs are considered in mortgage applications.