In addition to your credit score, your debt-to-income ratio (DTI) is an integral part of your overall financial well-being. Calculating your DTI1 could help you determine how comfortable you are with your current debt and decide if applying for credit is the right option.

When applying for a loan, lenders evaluate your DTI to help them determine the risk associated with you making another payment. Use the information below to calculate your debt-to-income ratio and understand what it means to lenders.

How to Calculate Your Debt-to-Income Ratio

Your debt-to-income ratio (DTI) compares how much you owe each month to how much you earn. In specific terms, it is the percentage of your monthly gross income (before taxes) that goes towards rent payments, home loans, credit cards, or other debt. To calculate your debt-to-income ratio:

Step 1:

Add up your monthly bills that could include:

• Monthly rent or housing payment
• Monthly payments for alimony or child support
• Student Loan, Auto, and Other Monthly Loan Payments
• Monthly credit card payments (use the minimum fee)
• other debts

Step 2:

• Divide the total by your gross monthly income, which is your income before taxes.

Step 3:

• The result is your DTI, which represents a percentage. The lower the DTI, the lower the risk to lenders.

What is a good debt-to-income ratio?

• In addition to your credit score, your debt-to-income ratio (DTI) is an integral part of your overall financial well-being. Calculating your DTI 1 could help you determine how comfortable you are with your current debt and decide if applying for credit is the right option.
• When applying for a loan, lenders evaluate your DTI to help them determine the risk associated with you making another payment. Use the information below to calculate your debt-to-income ratio and understand what it means to lenders.

Back-end or low debt-to-income ratios focus on adding all of your fixed monthly expenses to get your total monthly obligations and comparing the total to your monthly gross income amount. Along with essential housing obligations, monthly debts like child support, health insurance payments, credit card payments, and alimony payments are also considered. This approach to determining the actual financial status of the borrower provides a clearer picture of the total current debt load. It gives the lender a better idea of ​​how much risk the loan extension entails.

It’s important to note that a debt-to-income ratio calculation will always include obligations that appear on a credit report. This means that existing loans and other fixed monthly expenses will be present. However, variable charges are not likely to show up on a credit report and therefore must be disclosed by the borrower.

Lenders also tend to set a percentage range for your debt-to-income ratio. When the debt-to-income ratio calculator indicates that the down payment ratio is no more than 35% of gross income and the fund ratio is half of the gross income, the borrower is generally considered a reasonable risk. However, if the debt to income ratio is above 50%, the lenders may reject the loan application.