Use our easy, single-step calculator to quickly determine your Debt-to-Income (DTI) ratio for mortgage qualification. Understanding this key financial metric is the first step toward securing your new home loan.
Calculate Debt to Income Ratio for Mortgage
Your Back-End DTI Ratio is:
Detailed Calculation Steps:
Debt to Income Ratio Formula:
Formula Sources: CFPB – Debt-to-Income Ratio | Investopedia – DTI
Variables:
- Monthly Housing Payment (PITI): The combined cost of Principal, Interest, Property Taxes, and Homeowner’s Insurance.
- Other Monthly Debt Payments: Minimum monthly payments for credit cards, car loans, student loans, and other installment debts.
- Gross Monthly Income: Your total income before taxes and deductions are taken out.
Related Calculators:
What is Debt to Income Ratio for Mortgage?
The Debt-to-Income (DTI) ratio is a key metric lenders use to gauge your ability to manage monthly payments and repay debts. It is calculated by dividing your total monthly debt payments by your gross monthly income. This ratio helps a lender determine how much of your monthly income goes toward paying debts.
For mortgage qualification, lenders typically look for a DTI ratio below 43%, though ratios in the 36% range or lower are considered excellent. A lower DTI indicates that you have more income available to cover your new mortgage payment, making you a less risky borrower.
The two main types are Front-End DTI (housing expenses only) and Back-End DTI (housing plus all other debts). Most lenders focus primarily on the Back-End DTI, which is what this calculator provides.
How to Calculate Debt to Income Ratio (Example):
- Determine Total Monthly Debt: Add your monthly housing payment ($\$1,500$) and your other monthly debts ($\$500$). Total Debt is $\$\mathbf{2,000}$.
- Determine Gross Monthly Income: Find your income before taxes. Assume it is $\$\mathbf{5,500}$.
- Divide Debt by Income: $\$2,000$ / $\$5,500$ = $0.3636$ (or $36.36\%$).
- Final DTI Ratio: Your DTI is $\mathbf{36.36\%}$. This is typically a good ratio for mortgage qualification.
Frequently Asked Questions (FAQ):
What is a good DTI ratio for a mortgage?
A DTI of 36% or less is generally considered favorable, with the maximum acceptable limit for most conventional loans being around 43%. FHA loans may sometimes allow higher DTI ratios under specific conditions.
How can I lower my DTI ratio?
You can lower your DTI by either increasing your gross monthly income (e.g., getting a raise or second job) or, more commonly, by reducing your total monthly debt payments (e.g., paying off car loans, credit card balances, or other installment debts).
Does DTI include utilities?
No, the Debt-to-Income ratio only includes recurring debt payments that show up on your credit report, such as mortgages, car payments, and minimum credit card payments. Regular expenses like utilities, groceries, and insurance premiums are not included.
Is my DTI calculated using gross or net income?
DTI is always calculated using your **gross monthly income** (income before taxes and deductions). Lenders use gross income because it provides a consistent, verifiable figure from your pay stubs or tax returns.