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 used by lenders to assess a borrower's ability to manage monthly payments.

2. How Does the Calculator Work?

The calculator uses the DTI formula:

Where:

• Total Monthly Debt — Sum of all monthly debt obligations (mortgage, car loans, credit cards, etc.)
• Monthly Income — Gross monthly income before taxes

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 evaluate creditworthiness. A lower DTI indicates better financial health and increases loan approval chances. Most lenders prefer DTI below 36%, with no more than 28% going toward housing expenses.

4. Using the Calculator

Tips: Enter all monthly debt payments and your gross monthly income. Include all recurring debt obligations but exclude living expenses like utilities and groceries.

5. Frequently Asked Questions (FAQ)

Q1: What's a good DTI ratio?
A: Generally, below 36% is good, 36-43% may limit borrowing options, and above 43% is considered high risk by most lenders.

Q2: What debts are included in DTI?
A: Include mortgage/rent, car loans, student loans, credit card minimum payments, personal loans, and other recurring debt obligations.

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

Q4: Is DTI calculated before or after taxes?
A: DTI uses gross income (before taxes). Some lenders may also look at your net DTI (after taxes).

Q5: Does DTI affect credit score?
A: While DTI itself isn't in credit reports, high credit utilization (part of DTI) can lower your credit score.