Debt-to-Income Ratio Calculator
Calculate your DTI ratio to see how much house you can afford
Along with your credit score, your debt-to-income (DTI) ratio is a key factor that lenders consider in assessing your overall financial wellness. Learn more about what DTI ratio is and how to lower it, then use our debt-to-income ratio mortgage calculator for some insights on whether you qualify for a home loan, and how much house you can afford.
What is debt-to-income ratio?
Your debt-to-income ratio is the amount of monthly recurring debt payments compared to your gross monthly income. For instance, let’s say that your gross monthly income is $5,000. You have a total of $2,000 of recurring debt obligations, which include a car loan, rent, and a credit card balance. To calculate your DTI ratio, you can divide your minimum payment and debts ($2,000) by your gross monthly income ($5,000). In this scenario, the result would be 0.40, or 40%.
Not all of your monthly expenses are used to calculate DTI: When assessing your debt-to-income ratio, lenders will only examine certain bills and obligations, such as rent or mortgage payments, car loans, student loans, credit card debts, or other recurring debt payments like child support and alimony. Your DTI does not include miscellaneous expenses like utility bills, home repairs, groceries, daycare, commuting expenses, healthcare/insurance, or car insurance.
How to use a debt-to-income ratio mortgage calculator
Begin by adding up your primary sources of monthly income – typically, the totals of your work paychecks in a month – and entering it in the “Gross Monthly Income” field. Fill in additional information if you receive alimony/child support, retirement benefits, or other regular income.
Next, enter your major recurring monthly debt payments: mortgage/rent, car loan(s), total credit card minimum payments and student loans, for instance.
Depending on the resulting ratio – your monthly debt total payments divided by your gross monthly income – you may find that you need to increase your income or reduce your debt to qualify for a mortgage.
What costs are included in a mortgage payment?
When you make a monthly mortgage payment, your money goes toward:
- Principal balance – This is the amount remaining on your original loan amount, not including interest or other charges.
- Interest – The fee you are paying to borrow the money, paid as a percentage of your principal balance.
- Property tax – One month’s worth of your annual property tax is put in a mortgage escrow account, from which your lender pays property taxes when they are due each year.
- Homeowners insurance – As with your property taxes, one month’s worth of your annual premium is kept in escrow and paid by the lender annually.
- PMI and HOA – Additionally, if your mortgage requires private mortgage insurance (PMI), or if your property is part of a homeowners association (HOA) with annual fees, these costs may also be wrapped into your monthly payment.
How much house can you afford?
As a rule, you’ll want to look for a home price three to five times your annual household income. However, your exact budget will depend on your existing debts and how much money you can put toward a down payment.
Additionally, DTI can be categorized into two types – front-end and back-end – and depending on how yours shape up, there may be different mortgage loans available to you with slightly different ratio thresholds for approval. Breaking down DTI into front-end and back-end can help you better understand which financial obligations are making the biggest impact on your creditworthiness.
- Front-end DTI is the ratio between your gross income and your current or projected housing expenses. This figure will include your base mortgage payment, property taxes, mortgage insurance, homeowners insurance, and homeowners association dues when applicable. Generally, lenders want your front-end DTI to be under 35%.
- Back-end DTI is generally larger than front-end DTI and represents the total recurring debt that you owe – including the front-end DTI – compared to your gross monthly income.
How to lower your debt-to-income ratio
There are steps you can take to improve your financial health by lowering your DTI ratio.
To address debt, the most straightforward approach is simply to pay down your existing debts more quickly – putting extra money toward your car payment, for instance. You can also explore debt consolidation, which involves obtaining a personal loan and using the funds to pay off multiple debts such as smaller loans and credit cards. Your debt-to-income ratio can also be lowered by decreasing your monthly payment amounts through refinancing existing loans with lower mortgage interest rates.
On the other side of the equation, you can also seek out ways to increase your income through additional work; a new, higher-paying job; or a promotion.
Mortgage terms to keep in mind
- Debt-to-income (DTI) ratio: The percentage of your gross monthly income that goes toward your debt.
- Gross monthly income: The amount of money you receive each month before taxes. In addition to employment pay, this can include alimony or child support payments, retirement benefits, or other income.
- Housing expense ratio: The percentage of gross monthly income budgeted to pay housing expenses, whether rent or mortgage.
- PITI: An abbreviation for “Principal, Interest, Taxes, Insurance,” used to describe four key parts of your monthly mortgage payments.
Looking for another term put in plain language? Visit the complete CrossCountry Mortgage Glossary.
Additional mortgage calculators
Buying or refinancing a home can be confusing – we want to make beginning the journey as simple as possible. We’ve developed easy-to-use tools that will help you compare your options, calculate your payment, see how much mortgage you can afford, understand your debt-to-income ratio, and discover answers to many of your homebuying questions.
Use our free, interactive calculators to start getting answers and take the next financial steps toward your goals:
