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

Definition: This calculator determines your debt-to-income (DTI) ratio, which compares your monthly debt payments to your monthly gross 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)
• \( \sum Debts \) — Sum of all monthly debt payments (dollars)
• \( Income \) — Monthly gross income (dollars)

Explanation: The total monthly debt payments are divided by monthly income, then multiplied by 100 to get a percentage.

3. Importance of DTI Ratio

Details: Lenders use DTI to evaluate loan applications. Generally:

• ≤36%: Ideal for most lenders
• 37-43%: May qualify but with stricter requirements
• ≥44%: Often considered high risk

4. Using the Calculator

Tips:

• Include all recurring monthly debts (mortgage, car loans, credit cards, student loans, etc.)
• Use gross income (before taxes and deductions)
• Income must be greater than $0

5. Frequently Asked Questions (FAQ)

Q1: What debts should I include?
A: Include all recurring monthly debt obligations - housing payments, auto loans, credit card minimums, student loans, personal loans, alimony/child support.

Q2: Should I use gross or net income?
A: Lenders typically use gross income (before taxes) for DTI calculations.

Q3: What's a good DTI ratio?
A: Generally under 36% is preferred, though some lenders accept up to 43% for qualified borrowers.

Q4: How can I improve my DTI?
A: Either increase your income or reduce your monthly debt obligations.

Q5: Does rent count in DTI?
A: If you're applying for a mortgage, current rent counts as debt. Otherwise, only include rent if it's a contractual obligation.