What is a good Debt-to-Income (DTI) ratio?

A DTI ratio of 35% or less is generally considered excellent. Lenders typically look for a DTI of 43% or lower when approving you for a mortgage, although some may go higher. The lower your DTI, the better your chances of securing new credit at a favorable interest rate.

What debts are included in DTI calculations?

DTI calculations include all of your recurring monthly debt payments that appear on your credit report. This typically includes rent/mortgage payments, auto loans, student loans, personal loans, and minimum credit card payments. It does not usually include monthly expenses like utilities, groceries, or insurance.

How can I lower my DTI ratio?

You can lower your DTI ratio in two primary ways: 1) Reduce your total monthly debt payments by aggressively paying down loans (especially high-interest ones) or consolidating debt into a lower payment loan. 2) Increase your gross monthly income by seeking a raise, changing jobs, or adding a side hustle.

Debt-to-Income (DTI) Ratio Calculator

Understand a key metric lenders use to assess your financial health and determine your borrowing power.

Enter your details and click "Calculate DTI Ratio" to see your results.

The Ultimate Guide to Your Debt-to-Income (DTI) Ratio

When you apply for a loan—whether it's for a house, a car, or personal use—lenders scrutinize your financial health to assess their risk. While they look at many factors, one of the most critical metrics is your Debt-to-Income (DTI) ratio. It's a simple yet powerful percentage that provides a snapshot of your financial obligations relative to your earnings. Understanding your DTI is essential not just for securing a loan, but for managing your overall financial well-being.

This guide will demystify the DTI ratio, explain how our calculator computes it, detail what lenders are looking for, and provide you with actionable strategies to improve your number and strengthen your financial standing.

What is a Debt-to-Income (DTI) Ratio?

Your DTI ratio is the percentage of your gross monthly income that goes toward paying your recurring monthly debt. Lenders use it to measure your ability to manage monthly payments and repay debts. A high DTI ratio can signal that you are overextended and may have trouble making payments on new debt.

DTI = (Total Monthly Debt Payments / Gross Monthly Income) x 100

How to Use the DTI Calculator

Our calculator simplifies this formula by breaking it down into manageable steps:

List Your Monthly Debt Payments: Instead of summing your debts beforehand, enter each one into the corresponding category. It's crucial to include everything that would appear on a credit report:
- Mortgage or Rent Payments
- Car Loan Payments
- Student Loan Payments
- Minimum Credit Card Payments
- Personal Loan Payments & Other Debts
The calculator will total these for you automatically. Do not include everyday living expenses like groceries, utilities, transportation costs (gas), or insurance premiums.
Enter Your Gross Monthly Income: This is your total income from all sources, calculated on a monthly basis, before any taxes, insurance, or retirement contributions are deducted. If your income is variable, use a conservative monthly average from the past 1-2 years.

Once you enter these figures, the calculator will instantly provide your DTI ratio and an interpretation of what it means for your financial health.

What DTI Ratio Do Lenders Look For?

While every lender has slightly different criteria, there are generally accepted standards across the industry:

35% or less (Excellent): You are in great financial shape. Lenders see you as a low-risk borrower, and you should have access to the best loan products and interest rates.
36% to 43% (Good): This is a common and acceptable range. You will likely be approved for most loans, including mortgages. In fact, 43% is often the highest DTI ratio a borrower can have and still get a Qualified Mortgage.
44% to 49% (Needs Improvement): You are approaching a high-risk zone. While you may still be approved for some types of loans, you will likely face higher interest rates. Getting a mortgage in this range can be very challenging.
50% or more (High Risk): Lenders see a DTI in this range as a significant red flag. It is very difficult to obtain new credit, and it's a strong indicator that you should focus immediately on debt reduction.

Actionable Strategies to Improve Your DTI Ratio

If your DTI ratio is higher than you'd like, don't be discouraged. There are two primary levers you can pull to improve it. You can work on them separately or, for the fastest results, together.

Strategy 1: Decrease Your Monthly Debts

Prioritize High-Interest Debt: Use the Debt Snowball or Avalanche method to aggressively pay down loans. Reducing a credit card balance or paying off a personal loan eliminates that monthly payment from your DTI calculation entirely.
Avoid Taking on New Debt: While you are working to improve your DTI, refrain from making any new large purchases that require financing, such as a new car.
Consider Debt Consolidation: If you have multiple high-interest debts, a single debt consolidation loan with a lower interest rate could potentially lower your total monthly payment, thus lowering your DTI.

Strategy 2: Increase Your Gross Monthly Income

Negotiate a Raise: If you've been a high-performing employee, build a case and ask for a salary increase.
Find a Higher-Paying Job: Explore opportunities in your field that offer better compensation.
Add a Side Hustle: Consider part-time work, freelancing, or starting a small business to generate additional income streams.

Frequently Asked Questions (FAQ)

What is the difference between front-end and back-end DTI?

Front-End DTI only considers your housing-related costs (mortgage principal, interest, taxes, and insurance) as a percentage of your income. Back-End DTI, which this calculator computes, is what lenders care about most. It includes your housing costs PLUS all other recurring debt payments.

Do I include my spouse's income and debt?

If you are applying for a loan jointly with your spouse, you must include both of your gross incomes and all of both of your monthly debt payments. If you are applying for a loan by yourself, you should only include your own income and debts.

How often should I check my DTI ratio?

It's a good practice to check your DTI ratio at least once a year or anytime you experience a significant change in your income or debt. It is especially important to calculate it before you plan to apply for a major loan like a mortgage.