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DTI Formula:
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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 assess a borrower's ability to manage monthly payments and repay debts.
The calculator uses the DTI formula:
Where:
Explanation: The formula calculates what percentage of your gross income goes toward debt payments each month.
Details: Lenders use DTI to evaluate creditworthiness. A lower DTI ratio indicates better financial health and makes it easier to qualify for loans. Most lenders prefer a DTI ratio of 36% or less, with no more than 28% of that debt going toward mortgage or rent payments.
Tips: Include all monthly debt obligations in the debt field and your total pre-tax monthly income in the income field. Both values should be in the same currency (USD in this calculator).
Q1: What is considered a good DTI ratio?
A: Generally, a DTI ratio of 36% or lower is considered good, 37-42% is acceptable but may limit loan options, and above 43% is often problematic for obtaining new credit.
Q2: What debts should be included in the calculation?
A: Include all recurring monthly debts: mortgage/rent, auto loans, student loans, credit card minimum payments, personal loans, and any other ongoing debt obligations.
Q3: Does DTI include living expenses?
A: No, DTI only includes debt payments, not living expenses like utilities, groceries, insurance, or entertainment costs.
Q4: How can I improve my DTI ratio?
A: You can improve your DTI by increasing your income, paying down existing debts, or avoiding taking on new debt.
Q5: Do lenders use front-end or back-end DTI?
A: Lenders typically consider both: front-end DTI (housing costs only) and back-end DTI (all debt obligations). This calculator computes the back-end DTI ratio.