Debt-to-Income (DTI) Ratio Calculator
Calculate your debt-to-income ratio, a key metric for lenders.
Finance
Debt-to-Income (DTI) Ratio Calculator
Calculate your DTI ratio, a key metric for lenders.
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A Key Metric for Your Financial Health
Your Debt-to-Income (DTI) ratio is a crucial metric that lenders use to assess your ability to manage monthly payments and repay debts. This calculator helps you find your DTI by dividing your total recurring monthly debt by your gross monthly income. A lower DTI is generally favorable when applying for a mortgage, auto loan, or personal loan.
The DTI Formula Explained
DTI % = (Total Monthly Debt Payments / Gross Monthly Income) * 100
- Total Monthly Debt Payments: This includes your rent/mortgage, minimum credit card payments, auto loans, student loans, and any other regular debt payments.
- Gross Monthly Income: Your total income before any taxes or deductions are taken out.
How to Use the Calculator
- Gross Monthly Income: Enter your total pre-tax income for one month.
- Total Monthly Debt Payments: Enter the sum of all your monthly debt payments.
- Calculate DTI: The tool will display your DTI ratio as a percentage.
Real-World Example
- Gross Monthly Income: $6,000
- Monthly Debt Payments:
- Rent: $1,800
- Car Loan: $400
- Student Loan: $300
- Credit Card Minimums: $100
- Total Debt: $2,600
- Calculation:
($2,600 / $6,000) * 100= 43.3%
Frequently Asked Questions (FAQ)
- What is a good DTI ratio? Lenders generally prefer a DTI ratio below 43%. A ratio below 36% is considered ideal and may help you qualify for better interest rates.
- What expenses are NOT included in DTI? DTI calculations typically do not include living expenses like utilities, groceries, gas, or insurance. It focuses on contractual debt obligations.
- How can I improve my DTI? You can improve your DTI by either increasing your income or, more commonly, by paying down your existing debt. Reducing your total monthly debt payments is the most direct way to lower your DTI ratio.