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:

• Monthly Debt Payments — Sum of all monthly debt obligations
• Monthly Income — Gross monthly income before taxes

Explanation: The ratio shows what portion of income goes toward debt repayment each month.

3. Importance of DTI Calculation

Details: Lenders use DTI to evaluate creditworthiness. Lower DTI ratios indicate better financial health and higher likelihood of loan approval.

4. Using the Calculator

Tips: Enter total monthly debt payments and gross monthly income in dollars. Both values must be positive numbers (income must be greater than zero).

5. Frequently Asked Questions (FAQ)

Q1: What is a good DTI ratio?
A: Generally, 35% or lower is excellent, 36-49% is acceptable, and 50% or higher may limit borrowing options.

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

Q3: How can I improve my DTI ratio?
A: Either increase your income or reduce your debt payments by paying down balances or refinancing at lower rates.

Q4: Is DTI calculated before or after taxes?
A: DTI uses gross (pre-tax) income, not take-home pay.

Q5: Do lenders look at front-end and back-end DTI?
A: Yes, front-end DTI considers only housing costs, while back-end DTI includes all debt obligations.