In addition to your credit score, your debt-to-income (DTI) ratio is an important part of your overall financial health. Calculating your DTI may help you determine how comfortable you are with your current debt, and also decide whether applying for credit is the right choice for you.
When you apply for credit, lenders evaluate your DTI to help determine the risk associated with you taking on another payment. Use the information below to calculate your own 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. Specifically, it’s the percentage of your gross monthly income (before taxes) that goes towards payments for rent, mortgage, credit cards, or other debt. To calculate your debt-to-income ratio:
Step 1:
Add up your monthly bills which may include:
- Monthly rent or house payment
- Monthly alimony or child support payments
- Student, auto, and other monthly loan payments
- Credit card monthly payments (use the minimum payment)
- Other debts
Note: Expenses like groceries, utilities, gas, and your taxes generally are not included. See the FAQs for more information.
Step 2:
Divide the total by your gross monthly income, which is your income before taxes.
Step 3:
The result is your DTI, which will be in the form of a percentage. The lower the DTI, the less risky you are to lenders. For more information, see Understand what your ratio means.
Use our calculator to check your debt-to-income ratio
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This calculator is for educational purposes only and is not a denial or approval of credit.
When you apply for credit, your lender may calculate your debt-to-income (DTI) ratio based on verified income and debt amounts, and the result may differ from the one shown here.
You do not need to share alimony, child support, or separate maintenance income unless you want it considered when calculating your result.
If you receive income that is nontaxable, it may be upwardly adjusted to account for the nontaxable status.
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FAQs
To calculate your DTI, you add up all your monthly debt payments and divide them by your gross monthly income.
Can I calculate my debt-to-income ratio? ›
To calculate your DTI, you add up all your monthly debt payments and divide them by your gross monthly income.
Is 12% a good debt-to-income ratio? ›
Your debt-to-income (DTI) ratio is how much money you earn versus what you spend. It's calculated by dividing your monthly debts by your gross monthly income. Generally, it's a good idea to keep your DTI ratio below 43%, though 35% or less is considered “good.”
What is a good debt-to-income ratio for banks? ›
With a DTI ratio of 36% or less, you probably have a healthy amount of income each month to put towards investments or savings. Most lenders will see you as a safe bet to afford monthly payments for a new loan or line of credit.
Can you get a mortgage with 55% DTI? ›
If you are truly trying to afford more home than what traditional lenders will allow, there are lenders who have special programs with a maximum back end DTI of 50%-55%. Lenders who offer high DTI mortgages are portfolio lenders who keep the loans in their own portfolios or sell them to private investors.
How much is too much debt-to-income ratio? ›
A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.
What is the 28 36 rule? ›
According to the 28/36 rule, you should spend no more than 28% of your gross monthly income on housing and no more than 36% on all debts. Housing costs can include: Your monthly mortgage payment. Homeowners Insurance.
Is a 7% debt-to-income ratio good? ›
DTI is one factor that can help lenders decide whether you can repay the money you have borrowed or take on more debt. A good debt-to-income ratio is below 43%, and many lenders prefer 36% or below. Learn more about how debt-to-income ratio is calculated and how you can improve yours.
What is the average debt-to-income ratio in the US? ›
The Federal Reserve tracks the nation's household debt payments as a percentage of disposable income. The most recent debt payment-to-income ratio, from the third quarter of 2023, is 9.8%. That means the average American spends nearly 10% of their monthly income on debt payments.
Is rent included in debt-to-income ratio? ›
These are some examples of payments included in debt-to-income: Monthly mortgage payments (or rent) Monthly expense for real estate taxes.
50% or more: Take Action - You may have limited funds to save or spend. With more than half your income going toward debt payments, you may not have much money left to save, spend, or handle unforeseen expenses. With this DTI ratio, lenders may limit your borrowing options.
How can I lower my debt-to-income ratio? ›
You can lower your debt-to-income ratio by reducing your monthly recurring debt or increasing your gross monthly income.
How can I increase my income ratio? ›
The other way to improve your debt-to-income ratio is to lower your debt levels:
- Stop taking on more debt. Don't apply for new credit, avoid running up your credit card balances, and delay any major purchases.
- Pay down existing debt. ...
- Reduce your spending for the long haul.
It does not include health insurance, auto insurance, gas, utilities, cell phone, cable, groceries, or other non-recurring life expenses. The debts evaluated are: Any/all car, credit card, student, mortgage and/or other installment loan payments.
What is the FHA DTI limit? ›
The max debt-to-income ratio for an FHA loan is 43%. In other words, your total monthly debts (including future monthly mortgage payments) shouldn't exceed 43% of your pre-tax monthly income if you want to qualify for an FHA loan.
What is the highest debt-to-income ratio for FHA? ›
FHA loans have more lenient qualification requirements than other loans. Borrowers must have a minimum credit score of 580 to qualify for the loan. The maximum DTI for FHA loans is 57%.
Do you include utilities in debt-to-income ratio? ›
What payments should not be included in debt-to-income ratio? Expand. The following payments should not be included: Monthly utilities, like water, garbage, electricity or gas bills.
What is the typical debt-to-income ratio for a mortgage? ›
What's a good debt-to-income ratio? Ideally, your front-end HTI calculation should not exceed 28% when applying for a new loan, such as a mortgage. You should strive to keep your back-end DTI ratio at or below 36%.
What is a good debt ratio? ›
By calculating the ratio between your income and your debts, you get your “debt ratio.” This is something the banks are very interested in. A debt ratio below 30% is excellent. Above 40% is critical. Lenders could deny you a loan.
How to find debt-to-income ratio on credit karma? ›
How to calculate your debt-to-income ratio. To calculate your DTI, add up the total of all of your monthly debt payments and divide this amount by your gross monthly income, which is typically the amount of money you make before taxes and other deductions each month.
