Debt-To-Income Ratio Calculator (2024)

Your debt-to-income (DTI) ratio is a pivotal factor in qualifying for the lowest interest rates—and it’s easy to calculate.

How To Use This Debt-to-Income Ratio Calculator

One of the most important numbers that lenders look at when evaluating a mortgage application is your DTI ratio. It helps them determine whether or not a borrower can afford a loan and what interest rate they are likely to receive. As such, it’s important that you work to improve your income and debt levels to lower your DTI ratio.

To use our DTI calculator, input your home’s value and the amount you plan to put down. If you don’t have a specific home in mind, try out different values to see how it affects your DTI ratio.

From there, fill in additional details of your loan—including the term and interest rate—along with your recurring debt payments. Your recurring debt payments should include all loan-related expenses, such as student loans, personal loans and credit card debt payments. Do not include non-loan expenses, like groceries or utility payments, into this section. Finally, input your gross (pre-tax) monthly income.

Once you complete all fields, the calculator will provide you with your DTI ratio. Most mortgage lenders encourage a DTI ratio of 36% or less for a conventional mortgage.

What Is a Debt-to-Income Ratio?

A DTI ratio measures how much of your monthly pre-tax income you use to pay for existing debts. Lenders use this metric to determine if you can afford a new debt payment, such as a mortgage, and calculate your interest rate if you qualify for a loan.

You’ll have an easier time qualifying for your desired rate and term with a lower DTI. For example, you may be able to qualify for a 30-year term with a DTI of 36% but not for a 15-year mortgage as the shorter term requires a higher monthly payment.

Additionally, borrowers with a low DTI ratio are typically offered lower rates as they appear less risky to lenders and more likely to make on-time payments.

Types of Debt-to-Income Ratios

Mortgage lenders may calculate two different DTI ratios to determine your eligibility:

• Front-end DTI. Many refer to this metric as the household ratio as it only measures your future monthly mortgage payment, property taxes, insurance and homeowners association (HOA) dues. It doesn’t factor in other debt payments, like credit cards.
• Back-end DTI: This ratio is more comprehensive and, therefore, the one lenders look at more often to determine your eligibility for a mortgage. It takes into account all of your minimum monthly debt payments—this includes housing costs, car loans, credit cards, personal loans and student loans.

How To Calculate Your Debt-to-Income Ratio

The simplest way to calculate your DTI ratio is to divide your monthly debts by your gross monthly income, and then multiply by 100.

DTI = Monthly Debt Payments / Gross Monthly Income x 100

For example, if your monthly debts equal $2,500 and you earn $6,000 in pre-tax income, you’d have a DTI of 42%.

This quick calculation provides a firm idea of whether you can qualify for a specific home loan program as many lenders impose a maximum DTI.

Income Sources

To get an accurate DTI ratio estimate, it’s essential to include every income stream. As a reminder, you will use your pre-tax income for this exercise. Here are some of the items to include in your calculation:

• Wages, salary, tips and bonuses
• Social Security payments
• Pension
• Alimony or child support

Qualifying Debts

Along with your income sources, add up the minimum monthly payment for the following types of debts:

• Auto loans
• Court-ordered obligations (i.e. alimony and child support)
• Credit cards
• Home loans
• Personal loans
• Student loans

You don’t need to include non-loan expenses such as groceries, utilities, commuting costs and health insurance premiums.

What Is a Good Debt-to-Income Ratio?

Most mortgage lenders encourage a back-end ratio of 36% or less for a conventional mortgage, although it’s possible to qualify with a ratio as high as 43%.

Some mortgage programs permit a maximum DTI of 50%, such as Federal Housing Administration (FHA) loans and Fannie Mae HomeReady loans. However, lenders may have different DTI maximums and stricter borrower requirements.

Certain lenders choose not to disclose their DTI limits and instead focus more on other factors, such as your credit score, employment history and banking history. Regardless, you should strive to reduce your DTI ratio to 43% or less. Doing so gives yourself the best approval odds. Don’t forget to compare rates from several lenders as well.

If you have a high DTI and military experience, you may consider a U.S. Department of Veterans Affairs (VA) home loan as lenders also take your residual income into account. While many of the best VA lenders insist upon a maximum 41% DTI, sufficient residual income may help you qualify with a higher DTI.

How to Lower Your Debt-to-Income Ratio

Improving your DTI as much as possible before you apply can help you qualify for a better rate and more loan options.
Here are three different ways to reduce your DTI:

1. Pay off debt. Paying off an existing balance for a credit card or an installment loan removes a monthly payment and, in turn, lowers your DTI.
2. Make a bigger down payment. Contributing more money upfront reduces your mortgage balance, which leads to a smaller monthly payment. Paying your closing costs upfront and buying discount points can also help as you minimize your housing costs. There are several strategies you can try to save for a larger down payment.
3. Increase your income. You may also try to increase your monthly income by asking for a raise, earning a promotion or getting a new job. If you’re applying with your spouse as a co-borrower, they may also consider working more hours to achieve a higher household income.