Debt To Income Ratio Basics
Your debt-to-income (DTI) ratio is all your monthly debt payments divided by your gross monthly income. Lenders use the DTI ratio, along with credit history, to determine how well a borrower manages his/her monthly payments and whether will be able to repay a loan. Each lender has their own DTI ratio approval guidelines, with mortgage lenders having lower, more restrictive DTI limits than a personal loan lender. This debt to income ratio calculator helps you determine whether a lender will approve your request for an additional loan.
Calculate Your Debt To Income Ratio
To use this debt to income ratio calculator, enter all your income sources, such as salary, child support and pension benefits, then all your debt payments, such as mortgage/rent, auto, insurance and credit cards. The ratio (percentage) calculated will be the total of all your debt payments divided by your total income sources. The lower the ratio, the more likely a lender will approve your loan application.
As an example, a borrower with a combined monthly income of $5,000 with monthly debt payments of $1,800 (rent of $1,000, auto payment of $300, credit card minimum payments of $350, plus miscellaneous payments of $150) will have a DTI ratio of 36%.
Most mortgage lenders consider a DTI of 40% or more a sign of financial stress.