Debt-to-income ratio calculator

Your debt-to-income ratio, or DTI ratio, is calculated by dividing your monthly debt payments by your monthly gross income. The ratio is expressed as a percentage, and mortgage lenders use it to assess your ability to repay your loan. Generally, a higher DTI ratio poses a greater risk to the lender and may preclude you from obtaining a mortgage if it exceeds acceptable standards.

There are two components mortgage lenders use to calculate your DTI ratio: a front-end ratio and a back-end ratio. Here's a closer look at each:

• Front-end ratio: Also known as the housing ratio or mortgage debt ratio, this figure shows what percentage of your monthly gross income would go toward your housing expenses, including your potential monthly mortgage payment, property taxes, homeowners insurance and any homeowners association dues.
• Back-end ratio: Also known as the total debt ratio, this ratio shows the percentage of your income required to cover all of your monthly debt obligations, including your mortgage payments and other housing expenses. This includes installment loans, such as car loans or student loans.

You can use our DTI calculator above to quickly understand whether you meet your lender's requirements. Here's more detail on how DTI ratio is calculated:

1. Add up your monthly debt payments, including credit card minimum payments and payments for student or personal loans. Also include your estimated mortgage payment, homeowners insurance premium and property tax payment. If you’re taking out the mortgage with a spouse or another co-borrower, include both partners’ debt payments. Note that rent is typically not included in the DTI calculation, as the lender assumes you won't be paying rent once you purchase a home.
2. Divide the total monthly debt obligations by your monthly gross income before deductions for taxes, retirement savings and other items.

The ideal front-end ratio should be no more than 28%, and the ideal back-end ratio should be no more than 36%. However, mortgage lenders can and do accept higher ratios, often a back-end ratio up to 45% or even 50%. It all depends on your credit profile and whether you have other “compensating factors,” such as a bigger down payment. 

Still, it's better to keep your DTI ratio lower if you can help it, because borrowers with better financial profiles tend to receive better mortgage rates and other terms on their loans.

• Understand your budget. If you don't already have one, create a budget with as many of your expenses as possible. This can help you identify areas to cut back in order to put more money toward reducing debt.
• Map out a plan to reduce debt. There are many ways to tackle debt, including the snowball or avalanche methods. The snowball method involves paying down your smallest credit balance first while making minimum payments on others. Once the smallest balance is paid off, move to the next. The avalanche method, also called the ladder method, involves tackling the accounts with the highest interest rates first. Once you pay down the balance on the account with the highest interest rate, move on to the account with the second-highest rate, and so on.
• Make your debt more affordable. If you have high-interest credit cards, call your credit card company to see if it can lower your interest rate. In some cases, consolidating your credit card debt by transferring high-interest balances to an existing or new card with a lower interest rate may be better. You might also consolidate debt into a personal loan, especially if you can find one with a lower interest rate than you're currently paying.
• Avoid taking on more debt. This is especially important before and during a home purchase. Not only will taking on new loans drive up your DTI ratio, but it can also hurt your credit score, or even disqualify you for the mortgage entirely.