Your debt-to-income ratio tells lenders how much of your income goes toward paying debts. Lenders want to know that you'll be able to make your mortgage payments on time, and research finds that people with high DTIs are more likely to have trouble making those payments. Find out your DTI by entering the following values into the calculator.
Input
What to Input
Gross Monthly Income
Your earnings before taxes and other deductions (401K, health insurance, etc.). This also includes commissions or returns from investments. Take your total earnings for the year and divide by 12 to arrive at your average monthly income.
Monthly Credit Card Payment
The total amount you are required to pay each month toward credit cards. Include only the required minimum payments here, even though you may be paying more each month.
Monthly Car Payment
See AlsoHow much debt is too much?How much credit card debt is too much?Will paying off my credit card balance every month improve my credit score? | Consumer Financial Protection BureauWhat is a Good Debt-to-Income Ratio?The total amount of minimum payments you're required to pay each month toward auto loans.
Monthly Student Loan Payment
The minimum monthly payment required on your student loan.
Other Monthly Debt Payments
This is a total of your required minimum monthly payments on other debts. It may include personal loans, payments toward medical costs, alimony or child support, subscriptions, etc.
Estimated Mortgage Payment
Use your current or estimated monthly mortgage payment here, including escrow deposits, insurance and homeowners' association fees.
Outputs
What it means
Your back-end DTI
A debt-to-income ratio, this is the percentage of mortgage and other fixed-payment debts you pay relative to your income. This broad figure provides a full picture of your ability to take on more debt.
Your Front-end DTI
Your mortgage-to-income ratio. The front-end DTI is your projected monthly mortgage payment — including principal, interest and taxes — divided by your monthly gross income.
Total Monthly Debt Payments
The total amount of monthly payments you make toward revolving and installment debts.
Conventional or conforming lenders are usually looking for a maximum front-end ratio of 28 and a back-end ratio of 36, usually expressed as "the 28/36 rule." These thresholds are usually higher on FHA loans.
When you're shopping for a home loan, you should know that the FHA and conventional lenders may express these ideas in slightly different terms:
Total Mortgage Expense Debt-to-Income Ratio
Lenders usually prefer that your mortgage payment not be more than 28 percent of your gross monthly income. This is known in the mortgage industry as the front-end ratio.
Total Mortgage Payment
To determine your mortgage expenses, lenders include the following in their calculations:
- Principal and interest
- Escrow deposits for taxes
- Hazard and mortgage insurance premiums
- Homeowner's dues, if applicable
These costs are totaled and then divided by your monthly gross income for figure that should come to no more than .28, or 28 percent - for FHA loans, this number may be slightly higher.
Other Included Costs
Your lender will total these mortgage-related costs and divide them into your monthly gross income. The debt-to-income mortgage expense ratio should be 31 percent or lower.
Total Fixed Payment Expense Debt-to-Income Ratio
To get a clear picture of your ability to make payments on a home loan, lenders evaluate both your mortgage payments and the amounts you owe on all other debts as well, to arrive at what's known as your back-end debt ratio. Both revolving and installment debts are considered.
Revolving Debt
These debt amounts vary from month to month. They are open-ended, with variable interest rates and payments that are tied to balance amounts. They include:
- Credit cards (Visa, MasterCard, American Express, etc.)
- Store charge cards (Macy's, The Gap, and so on)
- Personal lines of credit
To determine your average monthly payments on revolving debts, your lender will generally ask you to submit several months' worth of statements.
Installment Debt
These are one-time debts have fixed terms and equal monthly payment amounts that apply toward principal and interest. Once the balance is paid off, the account is closed. They include:
- Auto payments
- Student loans
- Some personal loans
- Large purchases, such as vehicles or furniture
To calculate your installment debts, your lender will ask to see a statements for each debt that shows your total balance and monthly payment.
Once your monthly revolving and installment debt amounts are totaled, they are added to your mortgage expenses and other recurring monthly payments and divided by your pre-tax income. That final percentage should be no more than .36, or 36 percent for conventional loans, or slightly higher for FHA loans.
However, lenders are free to set their own ratios, and they may also exercise discretion based on certain factors, including a high credit score or a large down payment amount. On the other hand, if you have a back-end ratio that's higher than 43 and a credit score below 620, you can expect additional scrutiny from lenders before they'll consider extending you a loan.
Debt in an FHA DTI Calculation
When you apply for a loan, you'll need to disclose all debts and open lines of credit — even those with without current balances. In a lender's mind, a zero-balance open line of credit is a risk, because you're only one shopping spree away from being in more debt.
Make sure that your DTI calculations include all student loans, all credit card payments (use minimum payment amounts) and auto loans. Your auto and estimated mortgage payments should include amounts for monthly auto and homeowner insurance premiums. You also will need to include any loans you've received from family or friends, medical payments, alimony or child support and other regular monthly amounts owed.
