1. What is Debt To Income Ratio (DTI)?

Definition: DTI is a personal finance measure that compares an individual's monthly debt payments to their gross monthly income.

Purpose: Lenders use DTI to evaluate a borrower's ability to manage monthly payments and repay debts.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( DTI \) — Debt to Income Ratio (percentage)
• \( \text{Total Monthly Debt} \) — Sum of all monthly debt obligations ($)
• \( \text{Gross Monthly Income} \) — Total income before taxes and deductions ($)

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

3. Importance of DTI Calculation

Details: Most lenders prefer a DTI below 36%, with no more than 28% going toward housing expenses. A DTI above 43% may make it difficult to qualify for loans.

4. Using the Calculator

Tips: Enter your total monthly debt payments and gross monthly income. Include all recurring debts (mortgage, car loans, credit cards, etc.) and all income sources before taxes.

5. Frequently Asked Questions (FAQ)

Q1: What's considered a good DTI ratio?
A: Generally, 36% or lower is excellent, 37-42% is acceptable, and 43% or higher may limit borrowing options.

Q2: Should I include utilities in my debt calculation?
A: No, only include recurring debt obligations like loans, credit cards, and housing payments.

Q3: Does DTI include taxes and insurance?
A: For mortgage calculations, lenders typically include property taxes and insurance in your debt obligations.

Q4: 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.

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.