How the Debt To Income Ratio Calculator Works
Your debt-to-income ratio, or DTI, is the share of your monthly income that goes to paying debts. Lenders use it to judge whether you can afford a new loan. A low ratio means you have plenty of room in your budget. A high ratio means you are already stretched. The Debt-to-Income Ratio Calculator works it out from your income and your monthly debt payments.
What you enter
- Income before tax: your gross income, per year or per month. Lenders use income before tax.
- Other income: for example, a partner's income if you apply together, or rent you receive, per month.
- Monthly debt payments: your housing payment, car loans, student loans, credit card minimums, personal loans, child support or alimony, and any other debts.
Use the minimum required payment for each debt, not the balance. Everyday costs such as food, phone and utilities are not debts, so they are left out. For housing, use your rent, or the mortgage payment with property tax and insurance. If you are applying for a mortgage, use the new payment.
The formulas
back-end DTI = total monthly debt payments / gross monthly income x 100 front-end DTI = monthly housing payment / gross monthly income x 100
The back-end ratio, which counts all your debts, is the one most people mean by DTI. The front-end ratio, which counts only housing, is also called the housing ratio.
What is a good ratio?
| DTI | What lenders often think |
|---|---|
| 36% or less | Good. Easy to manage, and most loans are open to you. |
| 36% to 43% | Acceptable. 43% is a common upper limit for a standard mortgage. |
| 43% to 50% | High. Some loans, such as FHA loans, may allow it with strong extra factors. |
| Over 50% | Very high. Most lenders will not approve a new loan. |
For the housing ratio, a common guide is 28% or less. These are rules of thumb. Each lender sets its own limits, and they also look at your credit score, savings and job history.
A worked example
You earn $78,000 a year, which is $6,500 a month. Your monthly payments are:
| Debt | Per month | Share of income |
|---|---|---|
| Housing | $1,500 | 23.08% |
| Car loan | $350 | 5.38% |
| Student loan | $250 | 3.85% |
| Credit card minimums | $120 | 1.85% |
| Total | $2,220 | 34.15% |
Your DTI is 34.15%, which is good. Your housing ratio is 23.08%. At the 36% guideline, you could take on $120 a month more of debt. At 43%, you could take on $575 more.
Chart: where the income goes
Housing ████████████████████████████████████████ 23.1%
Car loan █████████ 5.4%
Student loan ███████ 3.8%
Credit cards ███ 1.8%
Total 34.2%
What a bigger housing payment does
Say you move to a home with a $2,000 housing payment. Your debts rise to $2,720 a month, and your DTI rises to 41.85%. That is now above 36%, but within 43%. At a $2,400 payment, and a $600 car loan, the DTI is 51.85%, which is very high. The calculator shows these changes as soon as you change a number.
How to lower your DTI
- Pay down debts, starting with those with the highest monthly payments compared with their balance. Paying a loan off removes its payment completely.
- Avoid new debt before you apply for a loan.
- Raise your income, through a raise, a second job, or a co-borrower with an income.
- Refinance to a lower payment, but check the total cost.
What this calculator does not include
- Your credit score, savings and job history, which lenders also check.
- Exact lender rules, which vary by lender and loan type.
- Some debts a lender may count, such as certain deferred student loans. Ask the lender how it counts them.
- Your real budget. Your take-home pay is lower than your gross income, so a ratio that a lender accepts can still feel tight.
This tool gives an estimate for general information only. It is not financial advice or a loan approval. Ask your lender how it calculates your ratio.