# Debt-To-Income Calculator

## How it Works

Step 1

Enter your current monthly debts including: mortgage, loan, credit card, child support/alimony payments.

Step 2

Next, add your total monthly payments together and divide by your monthly income.

Step 3

Your gross monthly income is the amount of money you have earned before your taxes and other deductions.

## Let's Get Started

Debt-to-Income Ratio 0.00

## What is a debt-to-income ratio?

According to the Consumer Financial Protection Bureau, your debt-to-income ratio (DTI) is a calculation of all of your monthly debt payments divided by your gross monthly income. This is typically shown as a percentage in which lenders view the DTI ratios in developing their risk profile. For mortgage loans specifically, 43% is looked at as the highest ratio a borrower can have and still get a qualified mortgage. This is because those borrowers that have a high DTI are more likely to not make their monthly payments.

### What is included in debt to income ratio?

The DTI ratio is made up of front-end ratios and back-end ratios used by mortgage lenders. Below is a breakout below of each:

Front-end ratio

This is the % of your monthly gross income that goes towards housing expenses. This includes the following:
monthly mortgage payments

Back-end ratio

The % of your income that covers your debts plus mortgage payments and housing expenses. This includes the following:

• credit card bills
• car loans
• child support
• student loans
• additional debt that shows on your credit report.

### What is a good debt-to-income ratio?

Ideally, a front-end ratio should be no more than 28 percent and the back-end ratio should be 36% or lower. The front-end ratio is the mortgage-to-income ratio that is calculated by dividing your anticipated monthly mortgage payments by their monthly gross income, whereas the back-end ratio factors in additional expenses and debts. A DTI of 36% allows you some room to accommodate potential changes in your income and expenses. Obviously, the lower the DTI is, the better your probability is at getting a qualified mortgage and, better yet, the best rate. Outside of your DTI, lenders typically weigh your credit score, savings, assets and down payment, when evaluating if you can qualify for a loan, so lenders may accept higher DTI ratios.

### Does DTI impact my credit?

Your DTI ratio has little bearing on your actual credit score, but typically borrowers with a high DTI ratio may also have a high credit utilization ratio. This accounts for 30% of your credit score.

### How to calculate your credit utilization ratio?

Your credit utilization ration is the balance on your credit accounts compared to your maximum credit limit. An example is if you have a credit card with a \$5,000 limit and have a credit card balance of \$2,500, your credit utilization ratio would be 50%. Typically, you want to keep this below 30% when you apply for a mortgage.

## How can you lower your debt-to-income ratio?

### Create a Budget

Track your expenses and make sure you pay down your debt

### Create a strategy to pay off your debts

Snowball Method: pay down your small credit balances first and make minimum payments on others

Ladder Method: pay down the balance on your accounts with the highest interest rate first, then work your way down.

### Lower the rates on your debts

• Call your credit card company to see if you can lower your rate
• Consolidate your credit card debt by transferring high interest credit card balances to a new card with a lower rate
• Get a personal loan to consolidate your debt into a loan with a lower interest rate and one monthly payment

### Stop taking on more debt

• Make it a point not to take on new loans
• Stop making large purchases on credit cards

## Bottom Line

Your DTI ratio is a great measure of your financial stability. The lower it is, the better, as this means your debts are much more affordable. If you do have a high DTI, there are steps that you can take including budgeting or paying down your debts to start getting this ratio lower.