Debt to Income Ratio Calculator

This debt-to-income ratio calculator (or DTI calculator) is a handy tool for every person who has taken out any kind of loan, including a mortgage. It will tell you how profoundly indebted you are and whether you can afford yet another loan without disastrous consequences.

Read on to learn how to calculate your debt to income ratio, or – if your mortgage plan is a bit more complicated – jump to the partially amortized loan calculator!

The debt-to-income ratio (DTI) measures how much of your monthly income goes toward paying debts. It’s an important number that lenders use to decide if you can take on new loans.

To calculate it, you add up all your monthly debt payments (like loans, credit cards, and mortgages) and divide that by your gross monthly income, then multiply by 100 to get a percentage—more on this in the next paragraph of this article.

Consider this: if you pay $1,500 in debts each month and earn $5,000 before taxes, your DTI is 30%. A lower DTI means you’re managing your debts well, while a higher DTI can make it harder to get approved for new loans.

When you apply for a mortgage, lenders check your debt-to-income ratio (DTI) to see if you can afford the monthly payments. It shows what portion of your income already goes toward paying debts.

Most lenders look for:

• DTI below 36% – Ideal when using a debt to income ratio calculator to check if you qualify for most mortgages.
• Housing expenses below 28% of your gross monthly income is a good target for a good debt to income ratio.
• Some flexibility up to 43% DTI for certain loans, like FHA loans.
• Use our DTI calculator to check if your ratio is as it should be!

So now that we know the DTI (debt to income) ratio measures how indebted you are, calculated relative to your regular income, we can focus on some calculations and DTI details. After all, a payment of $200 a month can be a burden for some, while millionaires are not likely to even notice it.

Mathematically, DTI is your debt (recurring every month) expressed as a percentage of your monthly income:

DTI = debt / gross income × 100%

For example, if you make $2000 a month, and your monthly loan payment for your new car is $500, you can determine your DTI as follows:

$500 / $2000 × 100 = 25%

For another example, we can assume that your bank allows you to have a maximum DTI of 33%. Knowing your current debt of $500 a month and your income, you can easily figure out what the additional allowed loan is:

33% × $2000 = $660 is the maximum total debt.

$660 - $500 = $160 is the additional loan you are still allowed to take.

So, what are good debt to income ratios?. Naturally, the lower it is, the better - after all, you want as little money as possible to go towards your debts. If in doubt, you can stick to the following guidelines:

• DTI < 20%: excellent! While you should pay off your debt as soon as possible, this debt-to-income ratio should allow you to live the lifestyle you want without major constraints.

• DTI between 20 and 36%: healthy. You should avoid incurring more debts and might have trouble getting approved for a mortgage or yet another loan. Still, you are in a relatively good situation.

• DTI between 37% and 42%: troubling. You probably won't get approved for any additional loans; you should start working on a plan that will help you reduce your debts.

• DTI between 43% and 49%: dangerous. Such a debt-to-income ratio indicates financial trouble. It would be best if you devoted as much money and energy as possible to repaying your loans.

• DTI over 50%: extremely dangerous. More than half of your income is used to pay off debts and mortgages. If you're not following a strict payment plan yet, don't hesitate to consult a financial advisor and get professional help.

If you're planning to purchase a real estate property and take out a mortgage, consult our mortgage calculator and loan to value calculator, too!

So now that you know what debt-to-income ratio means, have fun calculating your results using our debt-to-income ratio calculator!