What Is a Debt-to-Income Ratio?
Your debt-to-income ratio, or DTI, is the percentage of your gross monthly income that goes toward paying recurring debt. Lenders use this figure to measure how much room you have in your budget for a new loan or mortgage payment. A debt-to-income ratio calculator takes your total monthly debt obligations and divides them by your gross monthly income, then expresses the result as a percentage.
How to Calculate Your DTI Ratio
To calculate DTI, add up all your recurring monthly debt payments, including rent or mortgage, auto loans, student loans, credit card minimums, and personal loans. Divide that total by your gross monthly income before taxes and multiply by 100. For example, if you earn $6,000 per month and pay $2,100 toward debt, your DTI is 35%.
What Is a Good DTI Ratio?
- Below 36%: Generally considered healthy, with comfortable room for new debt.
- 36% to 43%: Acceptable to many lenders, though you may want to reduce debt first.
- Above 43%: Most mortgage lenders consider this too high for a qualified mortgage.
Different loan types have different thresholds. FHA loans may allow a total DTI up to 43% or higher with compensating factors, while conventional lenders often prefer 36% or lower.
Why Your DTI Matters
A lower DTI signals that you can comfortably manage additional payments, which can lead to better interest rates and higher approval odds. If your DTI is high, consider paying down balances, avoiding new credit, or increasing income before applying. Before shopping for a home, check how much you can afford with our home affordability calculator or estimate monthly payments with the mortgage calculator.