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. It's expressed as a percentage and is used by lenders 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:

• Proposed Mortgage Payment — Your estimated monthly mortgage payment (USD)
• Other Debts — Your total monthly debt obligations (USD)
• Gross Monthly Income — Your total monthly income before taxes (USD)

Explanation: The equation shows what percentage of your gross monthly income would go toward debt payments.

3. Importance of DTI Calculation

Details: Lenders use DTI to assess mortgage applications. Generally, a DTI of 36% or less is preferred, with no more than 28% of that debt going toward servicing the mortgage.

4. Using the Calculator

Tips: Enter all amounts in USD. Include all monthly debt obligations (credit cards, car loans, student loans, etc.) in the Other Debts field.

5. Frequently Asked Questions (FAQ)

Q1: What is a good DTI ratio for mortgage approval?
A: Most lenders prefer a DTI below 36%, with some government-backed loans allowing up to 43-50% in certain cases.

Q2: Does DTI include taxes and insurance?
A: Yes, the mortgage payment should include principal, interest, taxes, and insurance (PITI).

Q3: What debts are included in DTI?
A: All recurring monthly debts including credit cards, auto loans, student loans, personal loans, and any other ongoing obligations.

Q4: How can I improve my DTI ratio?
A: You can improve your DTI by increasing your income, paying down existing debts, or reducing the mortgage amount you're seeking.

Q5: Is front-end DTI different from back-end DTI?
A: Yes, front-end DTI only considers housing costs, while back-end DTI (what this calculator shows) includes all debt obligations.