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 monthly gross income.

Purpose: Lenders like Wells Fargo 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)
• \( Debt \) — Total monthly debt payments (USD)
• \( Income \) — Total monthly gross income (USD)

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

3. Importance of DTI Ratio

Details: Most lenders prefer DTI below 36%, with no more than 28% going toward housing expenses. Wells Fargo typically requires DTI below 43% for qualified mortgages.

4. Using the Calculator

Tips: Enter your total monthly debt payments (mortgage, car loans, credit cards, etc.) and gross monthly income (before taxes). Income must be > 0.

5. Frequently Asked Questions (FAQ)

Q1: What counts as debt in DTI calculation?
A: Include all recurring monthly debt obligations: mortgages, auto loans, student loans, credit card minimum payments, alimony, etc.

Q2: What income sources should I include?
A: Include all pre-tax income: wages, bonuses, commissions, alimony received, investment income, and rental income.

Q3: What DTI ratio does Wells Fargo prefer?
A: Wells Fargo typically looks for DTI below 43% for qualified mortgages, though lower ratios (36% or less) are preferred.

Q4: How can I improve my DTI ratio?
A: Either increase your income or reduce your monthly debt payments by paying down balances or consolidating debts.

Q5: Does this calculator include front-end and back-end DTI?
A: This calculates the back-end DTI (all debts). Front-end DTI only includes housing-related debts.