- Debt-to-Income Ratio Calculator
- Mortgage approval: What’s behind the numbers in our DTI calculator?
- How the debt-to-income calculation works
- How to use our debt-to-income ratio calculator
- What’s included in your DTI ratio?
- How to improve your DTI
- When can DTI be higher than 36%?
- Debt To Income Ratio Calculator
- The calculator starts out by asking you for your gross monthly income
- After listing your gross monthly income, the calculator provides boxes for common fixed monthly payments
- Once you enter all the information above, hit the “calculate” button
- Why you should use the DTI ratio calculator
- To see if your monthly debt obligations are becoming excessive
- To know where you stand before applying for credit
- How to calculate your debt-to-income
- How to get debt
- Use a balance transfer credit card – stop paying interest on your debt
- Chase Freedom Flex℠
- Discover it® Balance Transfer
- Set up a personal or debt consolidation loan
- Does your debt-to-income ratio affect your credit score?
- Read more
Debt-to-Income Ratio Calculator
Your debt-to-income ratio plays a large role in whether you’re able to qualify for a mortgage. Known in the mortgage industry as a DTI, it reflects the percentage of your monthly income that goes toward debt payments and helps both you and lenders determine how much house you can afford. To lenders, it’s just as important as your credit score and job stability.
Lenders calculate your debt-to-income ratio by dividing your monthly debt obligations by your pretax, or gross, income. Most lenders look for a ratio of 36% or less, although there are exceptions when the ratio can be higher.
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Mortgage approval: What’s behind the numbers in our DTI calculator?
Your debt-to-income ratio matters when buying a house. It’s one way lenders decide how much mortgage you can handle and how ly you are to pay back the loan. DTI is calculated by dividing your monthly debt obligations by your pretax, or gross, income.
In most cases, lenders want total debts to account for 36% of your monthly income or less. Nonconventional mortgages, FHA loans, may accept higher a DTI ratio, but conventional mortgages may not be as flexible.
Lenders consider low DTI as important as having a stable job and a good credit score. When evaluating your mortgage application, DTI tells lenders how much of your income is already spoken for by other debts. If the percentage is too large, it’s a clue you may have trouble paying your monthly mortgage payments, and lenders will be reluctant to approve your loan.
Hate surprises? Estimating your DTI with the NerdWallet calculator before submitting your mortgage application can help you understand how much house you can afford.
How the debt-to-income calculation works
If you were to calculate your DTI on paper, it would look something this:
Monthly debt payments ÷ Pre-tax income = Debt-to-Income ratio (expressed as a percent)
But who wants to do all that math? The NerdWallet Debt-to-Income Ratio Calculator crunches the numbers for you.
Simply fill in each of the fields with your best estimate for each type of monthly debt. You’ll see your current DTI percentage and how it measures up to what lenders are looking for.
How to use our debt-to-income ratio calculator
- If your housing-related monthly debts are below 28%, you may qualify for a larger loan amount than originally expected
- If your total debts are above 36%, it may explain why you weren’t approved despite good credit
- If your DTI is 50% or above, you may have to pay down a substantial portion of your debts before you can purchase a home
What’s included in your DTI ratio?
Our tool calculates your back-end DTI ratio using potential mortgage payments and the following recurring debts:
- Minimum credit card payments
- Child support and alimony
- Personal loan or other monthly debts
Of course, these probably aren’t your only monthly expenses. Your back-end DTI ratio can also include what you spend on food, utilities, gas, insurance or entertainment, in addition to proposed mortgage payments. Although lenders may not inspect your back-end ratio to this detail, it’s important to look carefully at these costs so your true monthly financial obligations are represented.
Ideally, your total DTI ratio should be under 36%. Keep this in mind when deciding what “affordable” means for you.
How to improve your DTI
If the calculator shows a DTI over 36%, don’t be too discouraged: you may still have options. And knowing where you stand before filling out a mortgage application can save you a lot of time, money and heartache.
Achieve a lower debt-to-income ratio by:
- Increasing your income with a side hustle
- Reducing expenses and using the extra cash to pay off debts
Debt-to-income ratio is different than credit utilization ratio, which measures how much credit you’re using versus how much is available to you. But reducing credit utilization will typically improve your DTI.
When can DTI be higher than 36%?
Some mortgages such as those offered by the FHA, “have certain, more stable features” that make it more ly you’ll be able to afford your loan, according to the CFPB. Current FHA loan requirements allow for a total DTI ratio of up to 50% or less.
Both small lenders and large banks may offer loan options at higher DTI percentages. Be sure to compare mortgage loans from several lenders to find the best option for your financial needs.
Debt To Income Ratio Calculator
The Debt-To-Income (DTI) Calculator is a tool to help you determine the amount of fixed monthly payments you have compared to your income.
It can also show you if you’re in danger of your monthly payments exceeding your income – or even if you’re coming close.
The calculator starts out by asking you for your gross monthly income
“Gross” is the income you receive before payroll deductions, income tax and FICA tax withholding, payments for health insurance, or contributions to an employer-sponsored retirement plan.
Though it may be more helpful for you on a personal level to know what your debt-to-income ratio is your net income (your income after payroll deductions), lenders base the ratio on your gross income.
After listing your gross monthly income, the calculator provides boxes for common fixed monthly payments
Specifically, that includes student loans, auto loans, and your mortgage payment. If you have no mortgage payment, you should insert your monthly rent in this box.
The “Minimum credit card payment” refers to the total minimum payments on all credit cards you have balances on. The minimum payment is the payment indicated on your monthly credit card statements.
While it’s common for consumers to pay more than the minimum each month, debt-to-income ratios are calculated ly on the minimum monthly payment.
Finally, there are the “Other monthly debt payments”, which is a catchall for all other fixed monthly payments. In this box, you can include non-credit related payments, such as child support or alimony.
Once you enter all the information above, hit the “calculate” button
Voilà – you now have your debt-to-income ratio presented as both a percentage and a ratio.
Don’t forget – lenders are most concerned with the debt-to-income percentage, so it’s the one you’ve gotta be most concerned about.
Why you should use the DTI ratio calculator
There are two major reasons you should use the Debt-to-Income Calculator:
To see if your monthly debt obligations are becoming excessive
A high debt-to-income ratio can be an indication of financial trouble ahead, even if you seem to be easily managing your payments right now.
For example, let’s say your debt-to-income ratio is 50%. Let’s also say payroll deductions are eating up another 20%. That leaves just 30% of your gross income to cover everything else in life.
With a debt-to-income ratio that high, you may not be in a position to take on an additional obligation, should one arise. Knowing what the ratio is can help you determine the need to begin reducing your fixed monthly obligations.
To know where you stand before applying for credit
Lenders use the debt-to-income ratio as the determining factor in approving new credit.
By knowing what your debt-to-income ratio is before you apply, you’ll have a better chance of knowing whether you’ll be approved. Rather than submitting an application doomed to denial, you can take steps to lower your debt-to-income ratio in advance.
How to calculate your debt-to-income
So you now know how to use the calculator to calculate your debt-to-income ratio.
But there’s more specific information on this calculation the way lenders will calculate it. Remember that lenders:
- use your gross income, not your net income, to calculate the ratio. For whatever reason, payroll deductions income taxes, health insurance premiums, and retirement plan contributions, are not considered recurring obligations – even though that’s exactly what they are.
- also disregard other common monthly expenses, payments for utilities, insurance policies, cell phones, cable TV, and other subscriptions.
What’s left? Monthly payments tied to a debt or ordered by a court.
That’s why the calculator includes monthly payments for your mortgage, student loans, auto loans, minimum credit card payments, and other monthly debt payments.
And as a reminder, you should include any court-ordered payments, such as child support or alimony, in the last box. Technically, they are not debts, but since they’re court-ordered, they’re legal obligations.
How to get debt
It’s the question you just want the plain-and-simple answer to. There are two excellent ways to do it.
Use a balance transfer credit card – stop paying interest on your debt
Balance transfer credit cards are brilliant. I’m not joking – they really are.
What you do is move your debt from one credit card to a balance transfer credit card and effectively pay off your outstanding balance.
The reason why you do it is because of the amazing promotion that comes with these balance transfer credit cards: you don’t pay any interest at all for some extended period of time.
In my opinion, there’s really no reason not to do it. Take a look at my two favorite cards.
Chase Freedom Flex℠
If you have good to excellent credit, take a look at the Chase Freedom Flex℠ card. The Chase Freedom Flex℠ is a great no annual fee credit card that offers a bonus and regular cash back. The card also offers a 0% Intro APR on Purchases for 15 months intro APR for 15 from account opening.
The regular APR is 14.99 – 23.74% Variable.
New cardmembers will get a $200 bonus when you spend $500 with the credit card within the first three months of opening the account as well as earn 5% cash back on grocery store purchases (not including Target® or Walmart® purchases) on up to $12,000 spent in the first year.
Also, I’m a huge fan of the 5% cash back on up to $1,500 in purchases in bonus categories each quarter of the year. Once you add in the 3% cash back on dining and drugstore purchases and 1% cash back on all other purchases, this card can save you serious money.
Discover it® Balance Transfer
Another super attractive option to check out is the Discover it® Balance Transfer, especially if you have good to excellent credit. Here’s the scoop on this card: the card has an amazing See Terms See Terms introductory period on balance transfers. And then once the introductory period ends, the regular APR is See Terms.
Set up a personal or debt consolidation loan
The second key way to get debt is by consolidating your loans. In other words, you combine your debt from all kinds of places your credit cards and high-interest loans, bill, etc, and get a loan with ideally a much lower interest rate. This way you pay down your debt quicker by saving money on the interest you would have been otherwise paying at the higher rate.
The most important thing to remember? Only go this route of getting a debt consolidation loan if you can definitely – without a shadow of a doubt – may your monthly payments.
Here’s my recommendation for the best personal loan offers you can look into:
Does your debt-to-income ratio affect your credit score?
There’s no direct connection between your debt-to-income ratio and your credit score since the credit bureaus don’t calculate the ratio. But it generally follows that the higher your debt-to-income ratio is, the closer you are to being maxed out on your credit cards.
And it should go without saying that the status of being overextended greatly increases the lihood of missing monthly payments. This will flow into your payment history and lower your credit score, often substantially.
Money Under 30’s DTI Ratio Calculator gives you that ratio you really will want and need to know. If you’re getting dangerously close to overspending each month, it can also tell you if you’re ly to get approved or denied by a lender.
It’s for sure a good way to be sure you know where things stand – in case you need to look at the raw numbers and (gulp) hard facts.
If you want to help get your debt under control, don’t forget to check out high-yield savings account options.