Debt-to-Income (DTI) Ratio Calculator
Your DTI Ratio: 0%
What is a Debt-to-Income (DTI) Ratio?
The Debt-to-Income (DTI) ratio is a key financial metric used by lenders, particularly mortgage lenders, to determine your ability to manage monthly payments and repay debts. It compares your total monthly debt obligations to your gross monthly income (before taxes and deductions).
How to Calculate DTI
To calculate your DTI ratio, you add up all your fixed monthly debt payments and divide that sum by your gross monthly income. The formula is:
(Total Monthly Debt Payments / Gross Monthly Income) x 100 = DTI %
DTI Ratio Benchmarks
- 35% or Less (Ideal): Most lenders view this as a manageable level of debt. You are likely to qualify for the best interest rates.
- 36% to 43% (Good): This is acceptable for most mortgage programs, though some lenders may require additional documentation or higher credit scores.
- 44% to 50% (High): You may find it difficult to qualify for new loans. You have limited flexibility in your budget for emergencies.
- Over 50% (Critical): More than half of your income goes to debt. Financial counseling or aggressive debt repayment is recommended.
Example Calculation
Imagine you earn $6,000 per month gross. Your monthly expenses include a $1,800 mortgage, a $400 car payment, and $200 in student loans. Your total monthly debt is $2,400.
$2,400 / $6,000 = 0.40 (or 40% DTI)
Tips to Improve Your DTI
If your DTI is too high, you have two primary levers to pull: increase your income or decrease your monthly debt payments. Strategies include paying off high-interest credit cards, refinancing loans to lower monthly payments (though this may extend the loan term), or taking on a side hustle to boost your gross monthly income.