Debt to Income Calculator

How lenders compute it

Debt-to-income is total monthly debt payments divided by gross monthly income, before tax. Using net income instead is the most common mistake and produces a figure several points too high. Included are mortgage or rent, car loans, student loans, credit card minimum payments, personal loans and court-ordered payments such as child support. Excluded are utilities, groceries, insurance, subscriptions and other living costs, because those are not debt obligations.

Two ratios, not one

Mortgage lenders look at two. The front-end ratio counts only housing costs, typically principal, interest, taxes and insurance, and is usually expected below 28 percent. The back-end ratio counts all debt including housing and is the one usually meant by DTI. Both are assessed, and passing one while failing the other still causes problems.

Thresholds

Below 36 percent is comfortable and opens the widest range of products. Up to 43 percent is the conventional ceiling for a qualified mortgage in the US and a common cutoff elsewhere. Some programmes stretch to 50 percent with compensating factors such as a large deposit, strong reserves or a high credit score. Above 50 percent, options narrow sharply and pricing worsens.

What moves the ratio fastest

Paying off a small loan entirely removes its whole monthly payment from the numerator, which helps far more than making a large payment against a big loan that leaves the monthly obligation unchanged. A car loan with four payments left of a substantial monthly amount is often the single highest-leverage thing to clear before applying. Reducing a credit card balance helps only to the extent it reduces the minimum payment.

Timing

Lenders assess your obligations at application. Taking on new debt during the process, financing furniture before completion is the classic case, changes the ratio and can cause a re-underwrite or a withdrawn offer. Avoid new credit between application and completion.