Debt-to-income ratio calculator

A debt-to-income (DTI) ratio is a financial metric used by lenders to assess an individual’s ability to manage monthly debt payments in relation to their gross monthly income. It’s calculated by dividing the total monthly debt payments by the gross monthly income and expressed as a percentage.

In simple terms, the debt-to-income ratio reflects the proportion of a person’s income that goes toward paying off debt each month. Lenders use this ratio to evaluate a borrower’s financial health and to determine their eligibility for loans, mortgages, credit cards, and other forms of credit.

A lower DTI ratio indicates that a person has a smaller amount of debt relative to their income, which suggests a stronger financial position and a lower risk for lenders. Conversely, a higher DTI ratio indicates that a person has more debt compared to their income, which may raise concerns about their ability to manage additional debt responsibly.

Different lenders may have varying DTI ratio requirements depending on the type of loan and other factors. Generally, a DTI ratio of 36% or lower is considered favorable, although specific thresholds may differ based on the lender’s criteria and the type of loan being applied for.

Let’s consider an example to illustrate the calculation of the debt-to-income (DTI) ratio:

Suppose monthly debt equals of 2,500$ and your monthly debt payments is 200 $, then DTI=200/2500=0.08=8%