Debt to Income Ratio Calculator

What Is Debt-to-Income Ratio

The Debt-to-Income Ratio (DTI) is one of the most important numbers in personal finance, especially when it comes to borrowing money. In simple terms, your DTI compares your total monthly debt payments to your gross monthly income. Lenders use it to assess how comfortably you can handle additional debt.

There are two main types of DTI:

• Front-end ratio: Focuses on housing-related debt, such as your mortgage payment, property taxes, and homeowners insurance.
• Back-end ratio: Includes all monthly debt obligations—credit cards, student loans, auto loans, child support, and housing costs.

DTI Formula:

DTI = (Total Monthly Debt Payments / Gross Monthly Income) x 100

For example, if your monthly debts are $1,800 and your gross monthly income is $6,000, your DTI is 30%.

Why a Good DTI Matters When Buying a Home

If you're planning to buy a house, your debt-to-income ratio plays a huge role in whether or not you'll be approved for a mortgage. Mortgage lenders have specific DTI requirements:

• Conventional loans: Prefer back-end DTI of 36% or lower, though some allow up to 43%.
• FHA loans: Often accept DTI up to 50% if other financial factors are strong.

A lower DTI indicates you have a healthy balance between debt and income. This tells lenders you're less risky and more likely to keep up with mortgage payments. On the other hand, a higher DTI can signal financial stress and limit your borrowing ability.

How to Calculate Your DTI (Step by Step)

Wondering how to calculate your debt-to-income ratio? Here’s how:

List your monthly debt payments: Include credit cards (minimum payments), auto loans, personal loans, student loans, mortgage/rent, alimony, and child support.

Add them up: Let’s say all your monthly debt adds up to $2,200.

Determine your gross monthly income: This is your income before taxes and deductions. Assume it's $7,000.

Apply the formula:

DTI = (2,200 / 7,000) x 100 = 31.4%

This means 31.4% of your income goes to paying debts each month.

Example: Can Alex Afford a Mortgage?

Alex earns $6,500/month before taxes. His debts include:

• Car loan: $450
• Credit card payments: $250
• Student loan: $300
• Projected mortgage (principal, interest, taxes, insurance): $1,500

Total monthly debt = $2,500

DTI = (2,500 / 6,500) x 100 = 38.5%

Alex’s DTI of 38.5% is acceptable for many FHA and even some conventional loans, but just over the preferred 36% limit. Paying off a small loan or increasing his income could improve his chances.

How to calculate the debt to income ratio for a mortgage?

To calculate your DTI for a mortgage, total all your monthly debts including the new mortgage payment. Divide by your gross income and multiply by 100. Most lenders prefer a DTI under 36%, though FHA and VA loans may allow up to 50%.

What is a good debt to income ratio to buy a house?

Generally, a DTI under 36% is considered good. Some lenders go up to 43% or 50% depending on your credit score, down payment, and other financial factors.

Can I use net income in the debt to income ratio formula?

No, lenders always use gross income (pre-tax) when calculating DTI. This helps them maintain a consistent standard across applicants.

How does DTI affect my mortgage approval?

Your DTI directly affects whether you qualify for a mortgage and how much you can borrow. A higher DTI may mean higher interest rates or a lower loan amount—or it might disqualify you from getting a loan at all.

How to improve my debt to income ratio?

To improve your DTI:

• Pay down existing debts
• Avoid taking on new loans or credit cards
• Increase your income through a second job or side hustle
• Refinance high-interest loans to lower payments

Is front-end and back-end ratio the same?

No. Front-end ratio focuses only on housing-related costs, while back-end ratio includes all debt payments. Lenders often consider both when evaluating mortgage applications.