- Calculator
- What is a debt-to-income ratio?
- What factors make up a DTI ratio?
- How is DTI calculated?
- What is an ideal DTI ratio?
- Does my DTI impact my credit?
- How to lower your DTI ratio
- DTI Calculation FAQ
Popular next steps
Credit Cards
Best small-business credit cards
See the best reward programs, expense tracking and money-saving perks for small-business owners.
Calculator
Business loan and interest rate calculator
Consider how much you’re borrowing and long you’ll need to pay it back.
Rates
Today’s best personal loan rates
Consider interest rates, terms, and features a lender has to offer. Determine if a lump-sum personal loan is the right financial move for you.
The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict,this post may contain references to products from our partners. Here's an explanation for.
The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our banking reporters and editors focus on the points consumers care about most — the best banks, latest rates, different types of accounts, money-saving tips and more — so you can feel confident as you’re managing your money.
Editorial integrity
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.
Key Principles
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.
Editorial Independence
Bankrate’s editorial team writes on behalf of YOU — the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information.
How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey.
Bankrate follows a stricteditorial policy, so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.
We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money.
Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range, can also impact how and where products appear on this site. While we strive to provide a wide range of offers, Bankrate does not include information about every financial or credit product or service.
What is a debt-to-income ratio?
A debt-to-income, or DTI, ratio is calculated by dividing your monthly debt payments by your monthly gross income. The ratio is expressed as a percentage, and lenders use it to determine how well you manage monthly obligations, and if you can afford to handle additional debt.
Generally, lenders view consumers with higher DTI ratios as riskier borrowers because a lot of their incoming cash is already committed, so to speak, and they might run into trouble repaying a new loan — especially if something happens to jeopardize their income.
There’s an extra wrinkle: Lenders look at two types of DTI ratios.
What factors make up a DTI ratio?
There are two components mortgage lenders use for a DTI ratio: a front-end ratio and back-end ratio. Here's a closer look at each and how they are calculated:
- Front-end ratio: also called the housing ratio, shows what percentage of your monthly gross income would go toward your housing expenses, including your monthly mortgage payment, property taxes, homeowners insurance and homeowners association dues.
- Back-end ratio: shows what portion of your income is needed to cover all of your monthly debt obligations, plus your mortgage payments and housing expenses. This includes credit card bills, car loans, child support, student loans and any other revolving debt that shows on your credit report.
How is the debt-to-income ratio calculated?
To calculate your DTI, add up all of your monthly debt payments, then divide by your monthly income.
DTI = Monthly debts / monthly income
Here’s how to calculate your DTI.
- Total your regular monthly payments for such expenses as credit cards, student loans, personal loans, alimony or child support – basically anything that shows up on a credit report. If you’re applying for a mortgage, you also need to add the proposed monthly mortgage payment into this total. If you’re taking the mortgage with a spouse or another co-borrower, include both partners’ debt payments.
- Divide that amount by the sum of your monthly gross income – that’s your paycheck (plus any other income you regularly receive) before deductions for taxes, retirement savings and other items.
Other monthly bills and financial obligations -- utilities, groceries, insurance premiums, healthcare expenses, daycare, etc. -- are not part of this calculation. Your lender isn't going to factor these budget items into their decision on how much money to lend you. Keep in mind that just because you qualify for a $300,000 mortgage, that doesn't mean you can actually afford the monthly payment that comes with it when considering your entire budget.
Hannah and Austin make a combined $10,000 a month, and they’re applying for a mortgage that would cost $2,100 a month in principal and interest. Their combined car payments and student loan payments are $1,100 a month.
Front-end ratio: $2,100/$10,000 = 21 percent
Back-end ratio: $3,200/$10,000 = 32 percent
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. In reality, depending on your credit score, savings, assets and down payment, lenders may accept higher ratios, depending on the type of loan you're applying for.
For conventional loans backed by Fannie Mae and Freddie Mac, lenders now accept a DTI ratio as high as 50 percent. That means half of your monthly income is going toward housing expenses and recurring monthly debt obligations.
Does my debt-to-income ratio impact my credit?
Lowering your credit utilization ratio will not only help boost your credit score, but lower your DTI ratio because you're paying down more debt.
How to lower your debt-to-income ratio
To get your DTI ratio under better control, focus on paying down debt with these four tips.
- Track your spending by creating a budget, and reduce unnecessary purchases to put more money toward paying down your debt. Make sure to include all of your expenses, no matter how big or small, so you can allocate extra dollars toward paying down your debt.
- Map out a plan to pay down your debts. Two popular ways for tackling debt include the snowball or avalanche methods. The snowball method involves paying down your small credit balance first while making minimum payments on others. Once the smallest balance is paid off, you move to the next. The avalanche method, also called the ladder method, involves tackling accounts based on higher interest rates. Once you pay down a balance that has a higher-interest rate, you move on the next account with the second-highest rate and so on.
- Make your debt more affordable. If you have high-interest credit cards, look at ways to lower your rates. To start, call your credit card company to see if it can lower your interest rate. In some cases, you may realize it's better to consolidate your credit card debt by transferring high-interest balances to an existing or new card that has a lower rate. Taking out a personal loan is another way you could consolidate high-interest debt into a loan with a lower interest rate and one monthly payment to the same company.
- Avoid taking on more debt. Don't make large purchases on your credit cards or take on new loans for major purchases. This is especially important before and during a home purchase. Not only will taking on new loans drive up your DTI ratio, it can hurt your credit score.
DTI Calculation FAQ
Compare Rates
Mortgage Rates
- 30 year fixed
- 15 year fixed
- 5/1 ARM
- 7/1 ARM
- 30 year FHA
- 30 year fixed refi
- 15 year fixed refi
- 5/1 ARM (IO)
- 30 year jumbo
- See all mortgage
HIGH YIELD CD AND MMA RATES
- 6 month CD
- 18 month CD
- 3 year CD
- 3 year jumbo CD
- MMAs
- 1 year CD
- 2 year CD
- 1 year jumbo CD
- 5 year IRA CD
- See all CDs
Other Rates
- Home equity
- Credit cards
- Savings
- Student loans
- Credit union CD
- Auto
- Checking
- Auto refinance
- Personal loans
- Prime rate
