How to Use Our DTI Calculator
Get a clear picture of your financial health in four simple steps:
- List Your Debts: Gather all your recurring monthly debt payments. These include rent/mortgage, car loans, student loans, credit card minimum payments, etc.
- Enter Debt Payments: Input each debt amount into the fields on the left. Click "+ Add another debt" for additional loans.
- Enter Your Income: In the right column, enter your gross monthly income (your total earnings before taxes are taken out).
- Calculate: Hit the "Calculate DTI Ratio" button to see your result instantly.
What is a Debt-to-Income (DTI) Ratio?
Your debt-to-income (DTI) ratio is a crucial personal finance metric that compares your total monthly debt payments to your gross monthly income. This number, expressed as a percentage, is one of the main factors lenders use to measure your ability to manage monthly payments and repay debts. A low DTI ratio demonstrates a healthy balance between debt and income, while a high DTI can signal that you have too much debt for your income level.
Why Your DTI Ratio is a Lender's Most Important Number
When you apply for a major loan, such as a mortgage or an auto loan, lenders need to assess the risk of lending you money. Your DTI is a quick way for them to see if you can handle adding another monthly payment to your existing financial obligations. It directly impacts your loan approval and interest rate.
- Below 36% (Ideal): You are in a strong position. Lenders see you as a low-risk borrower, improving your chances for approval with the best interest rates.
- 36% to 43% (Manageable): You can still be approved, but lenders might see this as a moderate risk. You may be offered less favorable terms. This is often the maximum DTI allowed for a qualified mortgage.
- Above 43% (High Risk): It can be challenging to get approved for new credit. Lenders may see you as overextended and at higher risk of default. Some government-backed loans (like FHA) may allow a DTI up to 50% in certain circumstances.
What's Included in Your DTI Calculation?
It's important to know which payments to include. DTI focuses on contractual debts and regular obligations, not everyday discretionary spending.
| ✅ Included in DTI | ❌ Not Included in DTI |
|---|---|
| Mortgage or Rent Payments | Groceries & Food |
| Auto Loan Payments | Utilities (Electric, Water, Gas) |
| Student Loan Payments | Transportation Costs (Fuel, Public Transit) |
| Minimum Credit Card Payments | Phone and Internet Bills |
| Personal Loan Payments | Insurance (Health, Auto) |
| Child Support / Alimony | Taxes and Retirement Savings |
Knowing your DTI before applying for a loan is a smart move. If your DTI is high, you might consider ways to lower it, such as paying down existing debts. Our Debt Consolidation Calculator can help you explore options.
How to Improve Your DTI Ratio
If your DTI isn't where you want it to be, you have two primary paths to improve it: lowering your debt or increasing your income.
Strategies to Reduce Monthly Debt:
- Pay Off Small Loans: Focus on eliminating smaller loans (like a personal loan or a low-balance credit card) completely. This removes the entire monthly payment from your DTI calculation.
- Avoid New Debt: Postpone any large purchases that require financing, like a new car or furniture, until after you've secured your primary loan (e.g., a mortgage).
- Reduce Credit Card Balances: Lowering your credit card balances will lower your minimum monthly payments, which directly helps your DTI.
Strategies to Increase Income:
- Document All Income Sources: Make sure you are including all verifiable income, including part-time work, freelance income, or bonuses.
- Negotiate a Raise: A permanent increase in your base salary is the most powerful way to improve your DTI.
- Consider a Co-signer: For some loans, adding a co-signer with a good income and low debt can help you qualify. Note that their income and debt will also be considered.
This tool is useful worldwide, but remember that maximum DTI limits can vary by country and lender. For example, lenders in Canada use Gross Debt Service (GDS) and Total Debt Service (TDS) ratios, which are similar concepts. Always check with your local financial institution for their specific requirements.
Frequently Asked Questions
What is a good DTI ratio?
Lenders ideally look for a DTI ratio below 36%. While you may still get a loan with a ratio up to 43% (or even 50% for some government-backed loans), a lower DTI always increases your chances of approval and helps you secure a better interest rate.
What is the difference between front-end and back-end DTI?
Front-end DTI (or housing ratio) only includes your housing-related expenses (mortgage/rent, property taxes, insurance). Back-end DTI, which our calculator computes, includes all your monthly debt obligations, including housing. Lenders care most about your back-end DTI.
Is DTI calculated with gross or net income?
DTI is always calculated using your gross monthly income, which is your total earnings before taxes and other deductions are taken out. This is because lenders want to see your full financial capacity before mandatory expenses.
How can I lower my DTI ratio quickly?
The fastest ways to lower your DTI are to pay off small loans (like a personal loan or a low-balance credit card) to eliminate a monthly payment entirely, or to increase your income, perhaps through a side job or a raise. Avoid taking on any new debt, such as a new car loan, before applying for a major loan like a mortgage.
What debts are included in DTI?
Debts included in your DTI calculation are recurring monthly obligations such as rent or mortgage payments, auto loans, student loans, minimum credit card payments, personal loans, and child support or alimony payments. Everyday living expenses like utilities, groceries, fuel, and insurance are not included.