How to Calculate Debt-to-Income Ratio
The debt-to-income ratio compares your monthly debt payments to your gross income. Lenders use it as a key factor in mortgage and loan approvals.
The Formula
DTI = (Total Monthly Debt Payments / Gross Monthly Income) x 100Where:
DTIDebt-to-Income Ratio — Percentage of income going to debtDebtMonthly Debt — Sum of all monthly debt paymentsIncomeGross Income — Total monthly income before taxesStep-by-Step Example
Here's how to calculate debt-to-income ratio step by step:
- 1Sum monthly debts: Add all recurring debt payments including mortgage, loans, and minimum credit card payments.
- 2Find gross income: Use your total monthly income before taxes and deductions.
- 3Divide and convert: Divide total debts by gross income and multiply by 100.
Following these 3 steps gives you the final debt-to-income ratio value.
Skip the Math
With $2,000 in monthly debt payments and $6,000 gross monthly income, your DTI is (2000/6000) x 100 = 33%.
Use the Free CalculatorWhy You Need This Calculation
- Lenders use DTI to determine your creditworthiness, so knowing yours helps you prepare for loan applications.
Common Mistakes
Using net income instead of gross.
Always use pre-tax gross income for DTI calculations.
Forgetting recurring obligations.
Include alimony, child support, and all minimum payments.
Including utilities and groceries as debt.
DTI only counts debt obligations, not general living expenses.