1. What is Debt-to-Income Ratio?

Debt-to-Income Ratio (DTI) is a personal finance measure that compares an individual's monthly debt payments to their monthly gross income. It's a key metric used by lenders to evaluate a borrower's ability to manage monthly payments and repay debts.

2. How Does the Calculator Work?

The calculator uses the DTI formula:

Where:

• \( Debt \) — Total monthly debt payments (USD)
• \( Income \) — Total monthly gross income (USD)

Explanation: The equation calculates what percentage of your monthly income goes toward debt payments. A lower DTI indicates better financial health.

3. Importance of DTI Calculation

Details: Lenders use DTI to assess loan eligibility, particularly for mortgages. Most lenders prefer a DTI below 36%, with no more than 28% of that debt going toward mortgage payments.

4. Using the Calculator

Tips: Enter your total monthly debt payments and gross monthly income in USD. Both values must be valid positive numbers, with income greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good DTI ratio?
A: Generally, a DTI below 36% is good, 36-43% is acceptable but may require scrutiny, and above 43% may make it difficult to qualify for loans.

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

Q3: How does DTI affect mortgage approval?
A: Lower DTI ratios increase your chances of mortgage approval and may qualify you for better interest rates. Most conventional loans require DTI below 45%.

Q4: Can I improve my DTI ratio?
A: Yes, by increasing your income, paying down debts, or a combination of both. Avoid taking on new debt while applying for major loans.

Q5: Is DTI the only factor lenders consider?
A: No, lenders also consider credit score, employment history, down payment amount, and overall financial stability when evaluating loan applications.