Debt-to-Income Ratio: How to Calculate It and What Counts
When you apply for a mortgage, a car loan or a rental, one number often matters as much as your credit history: your debt-to-income ratio, usually shortened to DTI. It shows what share of your income is already committed to debt payments before any new borrowing.
The calculation is a single division, but the details, such as which payments count and which income figure to use, trip people up. This guide covers the formula, works through an example, and shows how to check the effect of a new loan before you apply.
The formula
DTI % = total monthly debt payments ÷ gross monthly income × 100Gross income is before tax and other deductions.
Use the monthly amount you must pay on each debt, not the outstanding balance. For income, lenders usually use gross income, meaning what you earn before tax. If you know only an annual salary, divide by 12, or use the salary converter to switch between yearly, monthly and hourly figures.
Mortgage lenders often look at two versions. The front-end ratio includes only housing costs. The back-end ratio includes housing plus all other monthly debt payments, and is the figure most often given as DTI.
What counts as debt
Definitions vary by lender, but the usual pattern is:
- Usually counted: rent or the proposed mortgage payment, including property tax and insurance if they are part of it; car loans; student loans; personal loans; the minimum payment on credit cards; and court-ordered payments such as child support.
- Usually not counted: everyday living costs such as groceries, utilities, phone plans, transport and most insurance premiums, even though they take a large share of real budgets.
Credit cards usually count at the minimum payment shown on the statement, not at what you actually pay, and a card with no balance on your credit report typically adds nothing. Some lenders also ignore a loan that is very close to being paid off, so ask whether one that ends within a few months is included.
A worked example
Example: an annual salary of 72,000 is 72,000 ÷ 12 = 6,000 a month before tax. Monthly obligations are:
| Payment | Per month |
|---|---|
| Rent | 1,300 |
| Car loan | 380 |
| Student loan | 250 |
| Credit card minimum | 90 |
| Total | 2,020 |
The back-end DTI is 2,020 ÷ 6,000 × 100 = 33.7%. The front-end figure, using rent only, is 1,300 ÷ 6,000 × 100 = 21.7%. You can do each division with the percentage calculator.
How much room you have
A widely quoted rule of thumb is the 28/36 guideline: housing costs at no more than 28% of gross income, and total debt payments at no more than 36%. Lenders set their own limits, which differ by lender and loan type, and some accept higher ratios, so treat 28/36 as a starting point only.
In the example, 36% of 6,000 is 2,160, so there is 2,160 − 2,020 = 140 of room under that guideline. A new loan with a payment of 210 would lift the total to 2,230, and the ratio to 2,230 ÷ 6,000 × 100 = 37.2%, above the guideline.
Working backwards shows what that room supports. A payment of 140 a month at 7% over 60 months corresponds to a loan of about 7,070, and a payment of 210 to about 10,605; the loan calculator can run this for other terms and rates.
The same limit also constrains housing. With the other debts above (380 + 250 + 90 = 720), a total of 2,160 leaves at most 1,440 for housing, which is 24% of income, below the 28% housing guideline. Existing debts reduce what you can spend on a home.
Lowering your ratio
- Clear a small debt. Paying off the card with the 90 minimum lowers the total to 1,930 and the ratio to 32.2%.
- Avoid new payments before applying for a major loan.
- Raise income or include a co-applicant's income if the lender allows it.
- Refinance for a lower payment, but check the total cost over the life of the loan, since a longer term can lower the payment while raising total interest.
Remember that DTI uses gross income. Two people with the same ratio can have very different take-home budgets, so use it to understand how lenders view you, not as proof that a payment is comfortable.
This article is general education, not financial advice. Lender requirements and the debts they count differ, so ask your lender how they calculate DTI, or consult a qualified adviser.
- Percentage Calculator: Pick the question you need answered, enter two numbers and get the result instantly. The guide below shows the formula behind each mode.
- Loan Calculator: Enter the amount you want to borrow, the term, the interest rate and how often you will pay. You get the size of each payment, the total you will repay and the interest you will pay.
- Salary Converter: Enter an amount, choose the pay period it covers and the period you want to see. Extra fields for hours per week, work days, holidays and vacation appear only when the conversion needs them.
This article is general information, not professional advice. See our Disclaimer and Editorial Policy.
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