![]() ![]() The simplest way to calculate your DTI ratio is to divide your monthly debts by your gross monthly income, and then multiply by 100.ĭTI = Monthly Debt Payments / Gross Monthly Income x 100įor example, if your monthly debts equal $2,500 and you earn $6,000 in pre-tax income, you’d have a DTI of 42%. How To Calculate Your Debt-to-Income Ratio It takes into account all of your minimum monthly debt payments-this includes housing costs, car loans, credit cards, personal loans and student loans. Back-end DTI: This ratio is more comprehensive and, therefore, the one lenders look at more often to determine your eligibility for a mortgage.It doesn’t factor in other debt payments, like credit cards. Many refer to this metric as the household ratio as it only measures your future monthly mortgage payment, property taxes, insurance and homeowners association (HOA) dues. Mortgage lenders may calculate two different DTI ratios to determine your eligibility: ![]() For example, you may be able to qualify for a 30-year term with a DTI of 36% but not for a 15-year mortgage as the shorter term requires a higher monthly payment.Īdditionally, borrowers with a low DTI ratio are typically offered lower rates as they appear less risky to lenders and more likely to make on-time payments. ![]() You’ll have an easier time qualifying for your desired rate and term with a lower DTI. Lenders use this metric to determine if you can afford a new debt payment, such as a mortgage, and calculate your interest rate if you qualify for a loan. What Is a Debt-to-Income Ratio?Ī DTI ratio measures how much of your monthly pre-tax income you use to pay for existing debts. Most mortgage lenders encourage a DTI ratio of 36% or less for a conventional mortgage. Once you complete all fields, the calculator will provide you with your DTI ratio. Finally, input your gross (pre-tax) monthly income. Do not include non-loan expenses, like groceries or utility payments, into this section. Your recurring debt payments should include all loan-related expenses, such as student loans, personal loans and credit card debt payments. If you don’t have a specific home in mind, try out different values to see how it affects your DTI ratio.įrom there, fill in additional details of your loan-including the term and interest rate-along with your recurring debt payments. To use our DTI calculator, input your home’s value and the amount you plan to put down. As such, it’s important that you work to improve your income and debt levels to lower your DTI ratio. It helps them determine whether or not a borrower can afford a loan and what interest rate they are likely to receive. One of the most important numbers that lenders look at when evaluating a mortgage application is your DTI ratio. How To Use This Debt-to-Income Ratio Calculator ![]()
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