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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 is 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 shows you have a good balance between debt and income, making you more likely to qualify for loans with better terms.
Tips: Enter your total monthly debt payments and gross monthly income in USD. Both values must be positive numbers, with income greater than zero.
Q1: What is considered a good DTI ratio?
A: Generally, a DTI below 36% is good, with no more than 28% of that debt going toward mortgage payments. Lenders typically prefer ratios below 43% for qualified mortgages.
Q2: What debts are included in DTI calculation?
A: Include all monthly debt obligations: mortgage/rent, car loans, student loans, credit card minimum payments, personal loans, and any other recurring debt payments.
Q3: What income should be included?
A: Include all pre-tax income: salary, wages, tips, bonuses, investment income, rental income, alimony, and child support if you choose to include it.
Q4: How can I improve my DTI ratio?
A: You can improve your DTI by increasing your income, paying down existing debts, avoiding new debt, or a combination of these strategies.
Q5: Does DTI affect credit score?
A: While DTI itself doesn't directly affect credit scores, the factors that contribute to DTI (amount of debt, payment history) do impact your credit score.