Sarah is a certified credit counselor with 12 years of experience in personal finance, debt management, and mortgage pre-qualification standards, specializing in DTI analysis.
The **Debt-to-Income Ratio Calculator** (DTI) is a crucial metric used by lenders to assess your ability to manage monthly payments and repay debt. This calculator uses three core variables (Monthly Debt, Gross Income, and DTI) and a related fourth variable (Disposable Income) to solve for any missing value. **Input any three of the four core variables** to solve for the missing one.
Debt-to-Income Ratio Calculator
Debt-to-Income Ratio Formula
The calculation relies on two fundamental financial relationships:
Formula Source: Consumer Financial Protection Bureau (CFPB)
Variables Explained
Accurately defining your monthly debt and income is critical for an accurate DTI calculation:
- Monthly Debt (MD): Total minimum monthly payments for all recurring debts (credit cards, loans, mortgages, etc.).
- Gross Monthly Income (GMI): Your total income before taxes, deductions, or expenses are taken out.
- DTI Ratio (R): The percentage of your gross income that goes toward servicing debt.
- Disposable Income (DI): The amount of income remaining after monthly debt payments are deducted.
Related Calculators
Optimize your borrowing potential and financial health with these related tools:
- Loan Affordability Calculator
- Monthly Cash Flow Calculator
- Front-End DTI Calculator (Housing Ratio)
- Emergency Fund Calculator
What is the Debt-to-Income Ratio?
The **Debt-to-Income (DTI) Ratio** is a critical financial health metric that compares your total minimum monthly debt payments to your gross monthly income. Lenders use the DTI ratio to gauge your capacity to take on and repay new debt, such as a mortgage or auto loan. A low DTI ratio signals that you have a good balance between debt and income, making you a less risky borrower.
Generally, a DTI of 43% is the highest ratio a borrower can have and still qualify for a Qualified Mortgage, but lenders prefer ratios below 36%. Borrowers with lower DTI ratios typically receive better interest rates and more favorable loan terms. Understanding and managing your DTI is essential for major life purchases.
How to Calculate DTI (Example)
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Sum Monthly Debt Payments:
Calculate total Monthly Debt (**MD**). Example: Credit Card minimum (\$100) + Car Loan (\$400) + Student Loan (\$250) + Mortgage (\$1,250) = $\mathbf{\$2,000}$.
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Determine Gross Monthly Income:
Find Gross Monthly Income (**GMI**) before taxes. Example: Annual salary of \$75,000 / 12 months = $\mathbf{\$6,250}$.
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Calculate the DTI Ratio:
Divide the debt by the income: $$ R = \frac{\$2,000}{\$6,250} \times 100\% $$
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Determine the Result:
The resulting DTI Ratio is **32.0\%**. The Disposable Income (DI) is $\$6,250 – \$2,000 = \mathbf{\$4,250}$.
Frequently Asked Questions (FAQ)
A: Most lenders prefer a DTI ratio of **36% or less**. A DTI of 43% is often the absolute limit, but aiming for 30% or lower provides the best chance for favorable rates and approval.
A: DTI includes recurring minimum monthly payments for installment loans (mortgages, auto, student) and revolving debt (credit cards), but **does not** include utility bills, groceries, taxes, insurance (except for required PMI/HOA in a mortgage payment), or non-revolving expenses.
A: A credit score measures your payment history and reliability. DTI measures your capacity (income vs. debt load). Both are used by lenders, but DTI is a direct measure of affordability.
A: The two fastest ways are: 1) Increasing your Gross Income (e.g., getting a raise or second job) or 2) Paying off debts, which reduces your required Monthly Debt Payments (MD).