1. What is a Debt-to-Income (DTI) Ratio Calculator?

Definition: This calculator determines your debt-to-income ratio, which compares your monthly debt payments to your gross monthly income.

Purpose: It helps individuals and lenders assess financial health and borrowing capacity.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( DTI \) — Debt-to-Income ratio (percentage)
• \( Debt \) — Total monthly debt payments (dollars)
• \( Income \) — Gross monthly income (dollars)

Explanation: The ratio shows what percentage of your income goes toward debt payments each month.

3. Importance of DTI Ratio

Details: Lenders use DTI to evaluate loan applications. Lower ratios indicate better financial health and borrowing capacity.

Guidelines:

• ≤ 35%: Excellent
• 36-43%: Good
• 44-49%: Fair
• ≥ 50%: High risk

4. Using the Calculator

Tips: Enter all monthly debt payments (mortgage, credit cards, loans, etc.) and your gross (pre-tax) monthly income.

5. Frequently Asked Questions (FAQ)

Q1: What debts should I include?
A: Include all recurring monthly debt obligations: mortgage/rent, car payments, credit cards, student loans, personal loans, etc.

Q2: What income should I use?
A: Use gross (pre-tax) monthly income from all sources including wages, bonuses, alimony, investments, etc.

Q3: What's a good DTI ratio?
A: Most lenders prefer ≤ 43% for qualified mortgages, with ≤ 36% being ideal.

Q4: How can I improve my DTI?
A: Either increase income or reduce debt. Paying down balances or consolidating debts can help.

Q5: Does this include living expenses?
A: No, only debt payments. Living expenses like groceries aren't included in DTI calculations.