Debt-to-Income Ratio (DTI) Calculator

A debt-to-income ratio calculator measures a key metric that lenders use to assess a person’s borrowing risk. The result helps lenders determine loan terms like the loan amount and interest rate — and determine how easily someone can repay loans.

Ideally, people who want to borrow money also have access to a debt-to-income ratio (DTI) calculator.

The DTI calculator digests the factors that go into a DTI ratio — gross monthly income and monthly debt payments, including those for a mortgage, rent, car loans, student loans, credit cards, personal loans, and other recurring debts.

After a simple computation, the debt-to-income ratio is expressed as a percentage of monthly gross income. The lower your DTI number, the better prospect you are for a lender.

A low DTI, typically 36% or less, indicates that borrowers have enough financial cushion to meet their monthly obligations. Lenders usually consider borrowers to be risky if they have a DTI ratio of 43% or higher.

What Is Your DTI Ratio Used For?

Lenders — mortgage providers, banks, credit unions and credit card companies — use your DTI ratio when you apply for a loan. They use the ratio to evaluate your ability to manage monthly payments, take on additional debt and the maximum loan amount you can qualify for.

Although DTI is usually associated with mortgages, loan officers use it for other kinds of loans, including home equity loans and lines of credit, car loans and personal loans.

While DTI doesn’t affect your credit score directly, lenders often use a  metric similar to the ones used in credit scoring. As a result, having a higher DTI often correlates with lower credit scores. Both show higher levels of debt relative to income or available credit.

However, DTI is one of several metrics that lenders refer to when assessing your financial health and your ability to take on more debt. Three others are the front-end ratio, back-end ratio, and debt-to-credit ratio.

Front-End Ratio

Also known as the housing ratio, the front-end ratio focuses on housing costs relative to income. It shows the percentage of gross monthly income that goes to housing expenses (mortgage payments or rent, property taxes, homeowners insurance and homeowners association fees).

Back-End Ratio

This calculation shows what percentage of your income you apply to monthly housing costs, plus all other monthly debt payments you have, such as credit card payments, medical bills, and student loans. Most lenders prefer using the back-end ratio because it gives a more exact picture of overall financial health.

Debt-to-Credit Ratio

Also known as the debt-to-credit rate or credit utilization rate, the debt-to-credit ratio is the percentage of your total available credit that you are using.

Our Debt-to-Income Ratio Calculator

How to Calculate Your Debt-to-Income Ratio

Calculating your debt-to-income ratio is as simple as dividing your total monthly debt payments by your monthly gross income.

Here is a step-by-step guide to calculate your DTI ratio:

1. Add up your monthly debts. Include all your recurring monthly debt payments, such as:

• Mortgage or rent
• Car loans
• Student loans
• Credit card payments
• Medical bills
• Personal loans
• Any other recurring monthly payments such as child support or alimony.

If you’re applying for a mortgage, you must include the proposed monthly mortgage payment in the total. However, you don’t have to include living expenses — food costs, utility payments or paycheck deductions, like 401(k) contributions and health insurance.

Now, calculate your monthly gross income.

2. Gross income is all the money you bring in every month before taxes and other deductions, like retirement savings, are taken out. Include all sources of income, such as:

• Salary and wages
• Bonuses and commissions
• Investment Income
• Rental income
• Any other regular income sources such as alimony, child support, pensions, and social security

3. Divide your total monthly debt by your monthly gross income:

• Total Monthly Debt Payments / Monthly Gross Income

4. Convert to a percentage: Multiply the result by 100 to get your DTI as a percentage.

Let’s walk through an example calculation:

Suppose you have the following monthly debt payments:

• Mortgage: $1,500
• Car loan: $300
• Student loan: $200
• Credit card minimum payments: $100

To calculate your DTI ratio, you will:

1. Calculate your total monthly debt payments, ($1,500+$300+$200) = $2,100
2. Calculate your monthly gross income, which we take as a monthly salary of $6,000
3. Divide your total monthly debt by your monthly gross income = ($2,100 / $6,000) = 0.35
4. Convert to a percentage by multiplying the result by 100, (0.35 x 100) = 35%

That makes your debt-to-income ratio 35%.

This calculation is simplified. Your real-life calculation might have more sources of income or debt payments to consider. So, using a debt-to-income ratio worksheet can help you organize your financial information and make the calculation process easier.

What Is a Good Debt to Income Ratio?

When you want to qualify for a mortgage, almost all lenders consider consumers with higher DTIs as riskier customers. But what constitutes a “good” or “acceptable” DTI can depend on the loan you seek, the amount you want to borrow and the lender.

Here is a breakdown of industry DTI standards:

• DTI less than 36%: Lenders view a DTI of below 36% as good. This percentage says you can manage your current monthly obligations — and take on a new loan. In short, it makes you an attractive borrower.
• DTI between 36% and 43%: In this range, lenders are more cautious about you adding another payment to your monthly payments. You can expect fewer loan options and possibly a higher interest rate.
• DTI between 43% and 50%: If you’re in this range, most lenders consider you too risky to handle a new loan. You may secure one, but you will have stricter terms and a raised interest rate. You also may need help from a specialized loan program to secure financing.
• DTI over 50%: If you have a DTI over 50%, you’re probably not getting a loan. A score in this category means more than half of all your monthly income goes to paying debt. Lenders are likely to tell you to come back when you pay off a few of your existing debts.

After you learn your DTI, investigate the variety of loans that lenders make available. FHA and USDA loans, home equity loans, home equity lines of credit, auto loans, personal loans, etc., have varying DTI requirements.

What Is a Good Debt-to-Income Ratio to Qualify for a Mortgage?

For conventional mortgages, many lenders prefer a DTI of 36% and lower (back-end ratio), with no more than 28% of that going toward housing costs (a front-end ratio of 28% or less).

However, some lenders may accept DTIs up to 43% (back-end ratio) and 36% front-end ratio for manually underwritten loans.

The DTI can be as high as 50% (back-end ratio) with the Automated Underwriting System (AUS) or strong compensating factors, which is also the case with certain government-backed loans such as FHA loans.

DTI is one of several factors that lenders consider when evaluating someone who wants to qualify for a mortgage. They also look at credit scores, employment history, assets, and down payment size.

However, just because you have a DTI ratio that is considered good by industry standards, and you qualify for a mortgage. doesn’t mean you should take it. There’s no sense handcuffing yourself to a difficult-to-pay mortgage.

FHA & USDA Home Loans: Max Acceptable DTIs

The U.S. Department of Agriculture (USDA) backs USDA home loans to ensure that, with no down payment, homeownership is affordable for low-to-middle-income folks in rural communities.

The Federal Housing Administration (FHA), under the U.S. Department of Housing and Urban Development (HUD), guarantees FHA home loans. The goal is to help people who want to buy a home even though they have less-than-desirable credit and little money for a down payment.

With the government’s guarantee, private lenders who offer USDA and FHA home loans can accommodate borrowers with higher DTI ratios than they normally would.

The largest acceptable DTIs for USDA loans are 41% (for the back-end ratio) and 34% (front-end ratio) for automatic approvals and 44% (back-end) and (34% (front-end) for manually underwritten loans that have strong compensating factors.

FHA loans are more lenient. Some lenders accept DTIs as high as 57% (although you still must meet other FHA mortgage requirements, such as a minimum down payment of 3.5%).

The FHA recommends a maximum DTI ratio of 43% (back-end ratio) and 31% (front-end ratio) for manually underwritten loans. Those ratios can be higher if the borrower has strong compensating factors.

Other government-backed home loans, such as a VA home loan, allow for a higher-than-average DTI (typically no higher than 41%), but having sufficient residual income may help you qualify with an even higher DTI.

Auto Loans: Acceptable DTIs

Car lenders are typically less likely to calculate your DTI for credit worthiness because the purchases are usually so much smaller than mortgages. If they look at DTI, lenders will follow various DTI guidelines. Most auto-loan lenders cap DTI at 46%, with anything below 36% being the ideal DTI. Borrowers with a DTI higher than 36% can still access car loans, although at higher interest rates and stricter requirements.

In short, auto loans are much easier for people to get than mortgages. Most auto loan generators prefer to look at employment history (stable job and income), credit history and credit score. Consumers can secure a car loan with a DTI over 46% provided they have a strong credit report.

Debt-to-Income Ratio to Apply for a Home Equity Loan

When you apply for a home equity loan or a home equity line of credit (HELOC), most lenders require a DTI of 43% or lower, including the payment of the new loan. However, DTI requirements for home equity loans are less flexible than for HELOCs.

While most home equity loan lenders require borrowers to have a DTI of 43% or lower to qualify, some lenders are more stringent, requiring as low as 36%. HELOC requirements are more flexible. You may even qualify for a HELOC with a DTI as high as 50% or more if you have excellent credit or significant equity in your home.

It is important to note that your combined loan-to-value ratio (the sum of your first mortgage and the desired HELOC amount divided by your home’s value) also plays a crucial role in HELOC approval.

How to Lower Your Debt-to-Income Ratio

There are two basic ways to lower your debt-to-income ratio. You can increase your income or lower your debt.

Raising your income can include finding a higher-paying job, taking a second (or third) job, or helping someone in your family land a new job. If paying off your debt is the goal, bringing in more money every month helps.

Lowering your debt can involve debt consolidation or looking at one of several debt management plans.

Other tips to lower your debt-to-income ratio are:

• Track your spending and create a budget. Understanding where your money goes, no matter the amount, can help you find areas where you can cut back and allocate more funds toward paying down your debt. You can also avoid unnecessary luxuries, find cheaper alternatives, and even negotiate bills.
• Avoid taking on new debt. Avoid opening new credit accounts or making large purchases on credit while working on improving your DTI. Put big purchases on hold if possible and use cash or debit cards for purchases instead of credit cards.
• Increase your income. Look for ways to boost your earnings, such as asking for a raise, looking for higher-paying job opportunities, taking on a part-time job/gig or starting a side hustle.
• Don’t just make minimum payments. Pay more than the minimum on your debts to reduce the principal faster. For mortgages and other loans, making biweekly instead of monthly payments can help you pay off the loan faster and reduce your DTI. If you plan to get a new loan (like a mortgage), save for a larger down payment. That will reduce the loan amount and thus your monthly payments and DTI.
• Plan to pay down your debt. Choose between the debt avalanche (ladder) or debt snowball methods. Under the debt avalanche method, focus on paying off high-interest debts such as credit card balances first while making minimum payments on the rest and then moving to the next highest-interest debt. This tactic will lower your overall interest payment and speed up your debt payment. Under the snowball method, focus on paying off your smallest debts as quickly as possible while making minimum payments on the rest. This will build momentum as you roll the small payment into the next smallest balance and the amount snowballs, helping you clear the bigger balances more quickly.
• Consolidate your debt. Consider transferring high-interest credit card balances to an existing or new credit card with a lower interest. You can also take out a personal loan to consolidate multiple high-interest debts into one lower-interest payment.
• Seek professional help. If you are struggling to manage your debt, consider working with a credit counselor or financial advisor who can help you develop a personalized plan to lower your DTI. Nonprofit credit counseling agencies provide this service for free.

You can only lower your DTI by reducing your monthly debt payments or increasing your income. Ideally, do both.

A lower DTI ratio not only makes you more attractive to lenders but also gives you more financial flexibility and peace of mind in your day-to-day life. And by using a debt-to-income ratio calculator to watch your DTI regularly, and then taking steps to improve it, you can enhance your financial stability and increase options when you borrow money.