Your debt-to-income or DTI is a comparison of how much you owe every month to how much you earn monthly. It's the percentage of your gross monthly income (before taxes) that goes towards payments for rent/mortgage, personal loan, and student loans. Most loan providers are looking for a debt to income below 43% for mortgages and many personal loan providers require under 40%. We have provided a debt to income calculator at the bottom of the page. To calculate your debt-to-income ratio, follow these steps below:
Add up your bills which you pay monthly. They may include:
- Mortgage or rent payments
- Homeowner insurance (if Escrowed)
- Student loan payments
- Personal loans
- Child support
- Alimony payments
- Co-signed Loan payments
- Minimum credit card payments
- Car payments
- Real estate taxes (if Escrowed)
- Timeshare payments
Divide this total by your "gross" monthly income, which is your income "before taxes".
The result is your DTI percentage that is used as a guide to all lenders. The lower the DTI percentage number, the less risk you are to the lender.
The following payments should not be included as part of your DTI calculation:
- Food or entertainment
- Car Insurance
- Health Insurance
- Cell phone
- Utility payments, like electricity, sewer, water, gas
How My Debt To Income Affects my Ability to Receive a Loan
Lenders calculate your Debt-to-income to make sure you can afford to take on an additional loan payment. Having a low DTI ratio provides you and the lender the assurance that you can manage the new loan.