Debt-to-Income (DTI) Calculator
Calculate your front-end and back-end DTI to assess your financial health and borrowing power.
Results
| Category | Monthly Amount | % of Income |
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Affordability & Improvement
Based on your income, here's what you might be able to afford at common DTI thresholds:
| Target DTI | Max Housing Payment | Max Total Debt |
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What is the Debt-to-Income (DTI) Ratio?
The Debt-to-Income (DTI) ratio is a crucial personal finance measure that compares your total monthly debt payments to your gross monthly income (your income before taxes and other deductions). Lenders, especially mortgage providers, use this percentage to gauge your ability to manage monthly payments and repay new debts. A lower DTI ratio indicates a good balance between debt and income, making you a less risky borrower.
There are two main types of DTI ratios:
- Front-End DTI (Housing Ratio): This ratio only considers your housing-related expenses. It's calculated by dividing your total monthly housing costs (principal, interest, taxes, insurance, and HOA fees) by your gross monthly income.
- Back-End DTI (Total Debt Ratio): This is a more comprehensive ratio that includes all your recurring monthly debt payments. It's calculated by dividing your total monthly debt payments (housing costs + credit cards, auto loans, student loans, personal loans, etc.) by your gross monthly income.
How Lenders Use Your DTI
Lenders view your DTI as a primary indicator of your capacity to take on new debt. While lending criteria can vary, here are some general guidelines:
- 36% or less: A DTI in this range is generally considered excellent. It suggests you have ample income to service your current debts and can likely handle an additional loan payment.
- 37% to 43%: This range is often acceptable to many lenders, particularly for mortgages. However, you may face stricter requirements or be asked for a larger down payment.
- 44% to 50%: A DTI in this category is considered high. You may still qualify for a loan, but lenders will require strong compensating factors, such as a high credit score, significant cash reserves, or a large down payment.
- Over 50%: This is typically seen as a high-risk DTI. It signals that a large portion of your income is already committed to debt, and it can be very difficult to get approved for new credit.
Tips to Improve Your DTI
If your DTI is higher than you'd like, there are two primary ways to lower it: reduce your monthly debt or increase your income. Here are some actionable tips:
- Pay Down Your Debts: Focus on aggressively paying down loans with the highest monthly payments. The debt avalanche (paying highest interest first) or debt snowball (paying smallest balance first) methods can be effective.
- Avoid New Debt: Refrain from taking on new loans or running up credit card balances, especially in the months leading up to a major loan application like a mortgage.
- Increase Your Income: Look for opportunities to boost your income. This could mean asking for a raise, taking on a side hustle, or finding new revenue streams.
- Refinance or Consolidate: If you have high-interest debt, consider refinancing to a lower interest rate or consolidating multiple debts into a single loan with a lower monthly payment.
- Review Your Budget: Create a detailed budget to identify areas where you can cut spending. The money you save can be redirected toward paying down debt more quickly.
