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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 DTI ratio shows what percentage of your income is dedicated to debt repayment each month.
Details: Lenders use DTI to evaluate creditworthiness. A lower DTI ratio indicates better financial health and makes it easier to qualify for loans with favorable terms. Most lenders prefer a DTI ratio of 36% or less, with no more than 28% of that debt going toward mortgage payments.
Tips: Enter your total monthly debt payments and gross monthly income in USD. Include all recurring debt obligations (mortgage/rent, car payments, credit card minimums, student loans, etc.) and your total pre-tax income from all sources.
Q1: What is considered a good DTI ratio?
A: Generally, a DTI ratio of 36% or lower is considered good. Ratios between 37-43% may need improvement, while ratios above 43% may make it difficult to qualify for loans.
Q2: What debts are included in DTI calculation?
A: Include all recurring monthly debts: mortgage/rent, auto loans, student loans, credit card minimum payments, personal loans, and any other ongoing debt obligations.
Q3: What income sources should be included?
A: Include all pre-tax income: salary, wages, bonuses, commissions, investment income, rental income, alimony, and child support if counted by lenders.
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: Do utilities and living expenses count in DTI?
A: No, DTI only includes debt payments. Utilities, groceries, insurance, and other living expenses are not included in the DTI calculation.