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DTI Formula:
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The Debt-to-Income (DTI) ratio is a personal finance measure that compares an individual's monthly debt payments to their monthly gross income. It's a key metric used by lenders to assess mortgage affordability and creditworthiness.
The calculator uses the DTI formula:
Where:
Explanation: The ratio expresses what percentage of your gross monthly income goes toward debt payments, helping lenders determine your ability to manage monthly mortgage payments.
Details: Lenders use DTI ratios to evaluate mortgage applications. Lower DTI ratios indicate better financial health and higher likelihood of loan approval. Most lenders prefer DTI ratios below 43% for qualified mortgages.
Tips: Enter all monthly debt payments (credit cards, car loans, student loans, etc.) and your gross monthly income (before taxes and deductions). Both values must be positive numbers.
Q1: What is a good DTI ratio for mortgage approval?
A: Generally, DTI below 36% is excellent, 36-43% is acceptable for most lenders, and above 43% may require special consideration or be denied.
Q2: What debts are included in DTI calculation?
A: Include all monthly debt obligations: mortgage/rent, car loans, student loans, credit card minimum payments, personal loans, and other recurring debts.
Q3: How can I improve my DTI ratio?
A: You can improve your DTI by paying down existing debts, increasing your income, or a combination of both strategies.
Q4: Is front-end DTI different from back-end DTI?
A: Yes, front-end DTI only includes housing costs, while back-end DTI includes all debt obligations. Lenders typically focus on back-end DTI.
Q5: Do lenders consider other factors besides DTI?
A: Yes, lenders also consider credit score, employment history, down payment amount, and overall financial profile when evaluating mortgage applications.