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
How do 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. Your gross monthly income is generally the amount of money you have earned before your taxes and other deductions are taken out.
Is 12% a good debt-to-income ratio? ›
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? ›
35% or less: Looking Good - Relative to your income, your debt is at a manageable level. You most likely have money left over for saving or spending after you've paid your bills. Lenders generally view a lower DTI as favorable.
What is the acceptable debt-to-income ratio for a mortgage? ›
Your particular ratio in addition to your overall monthly income and debt, and credit rating are weighed when you apply for a new credit account. Standards and guidelines vary, most lenders like to see a DTI below 35─36% but some mortgage lenders allow up to 43─45% DTI, with some FHA-insured loans allowing a 50% DTI.
How much is too much debt-to-income ratio? ›
Key takeaways
Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. 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.
How much house can I afford with a 100k salary? ›
Using my rough estimates and plugging in the factors mentioned above, someone with a $100k salary should look for a home between $320,000 – $400,000.
How to lower debt-to-income ratio quickly? ›
Pay Down Debt
Paying down debt is the most straightforward way to reduce your DTI. The fewer debts you owe, the lower your debt-to-income ratio will be. Suppose that you have a car loan with a monthly payment of $500. You can begin paying an extra $250 toward the principal each month to pay off the vehicle sooner.
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.
Is a debt ratio of 75% bad? ›
Interpreting the Debt Ratio
If the ratio is below 1, the company has more assets than debt. Broadly speaking, ratios of 60% (0.6) or more are considered high, while ratios of 40% (0.4) or less are considered low.
Is a 50% debt-to-income ratio good? ›
A general rule of thumb is to keep your overall debt-to-income ratio at or below 43%.
Rent is an expense, and it can be a liability, but it is not a debt unless it is overdue. Rent and mortgage interest are in the same class of expense. But then mortgage interest is not a debt either.
Is a 17% debt-to-income ratio good? ›
What is an ideal debt-to-income ratio? Lenders typically say the ideal front-end ratio should be no more than 28 percent, and the back-end ratio, including all expenses, should be 36 percent or lower.
How do I calculate my debt-to-income ratio? ›
To calculate your debt-to-income ratio:
- Add up your monthly bills which may include: Monthly rent or house payment. ...
- Divide the total by your gross monthly income, which is your income before taxes.
- 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.
One factor they look at is how much credit you are using compared to how much you have available. In the case of a credit card, they look at the balance you owe compared to your available credit. Consistently paying off your credit card on time every month is one step toward improving your credit scores.
What is the formula for calculating the debt ratio? ›
To calculate the debt-to-assets ratio, divide your total debt by your total assets. The larger your company's debt ratio, the greater its financial leverage. Debt-to-equity ratio : This is the more common debt ratio formula. To calculate it, divide your company's total debt by its total shareholder equity.
How do I get my debt-to-income ratio down? ›
How do you lower your debt-to-income ratio?
- Make a plan for paying off your credit cards.
- Increase the amount you pay monthly toward your debts. ...
- Ask creditors to reduce your interest rate, which would lead to savings that you could use to pay down debt.
- Avoid taking on more debt.
- Look for ways to increase your income.
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. Private mortgage insurance.
How do I find my 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.
What is the debt-to-income ratio for a personal loan? ›
Ideally, you want your DTI to be as low as possible because that indicates that your income is well above what you need for recurring expenses. If you're applying for a personal loan, lenders typically want to see a DTI of 35% to 40% or less.
