How do I figure my debt-to-income ratio?

Asked by: Dr. Wilton Crist  |  Last update: October 16, 2023
Score: 4.7/5 (44 votes)

How to calculate your debt-to-income ratio
  1. Add up your monthly bills which may include: Monthly rent or house payment. ...
  2. Divide the total by your gross monthly income, which is your income before taxes.
  3. The result is your DTI, which will be in the form of a percentage. The lower the DTI, the less risky you are to lenders.

What is a good income to debt ratio?

What Is a Good Debt-to-Income Ratio? As a general guideline, 43% is the highest DTI ratio a borrower can have and still get qualified for a mortgage. Ideally, lenders prefer a debt-to-income ratio lower than 36%, with no more than 28% of that debt going towards servicing a mortgage or rent payment.

What is the formula for debt-to-income ratio?

To calculate your DTI, you add up all your monthly debt payments and divide them by your gross monthly income. Your gross monthly income is generally the amount of money you have earned before your taxes and other deductions are taken out.

Is rent included in debt-to-income ratio?

*Remember your current rent payment or mortgage is not actually included in your DTI calculated by the lender.

Are cell phone bills included in debt-to-income ratio?

Monthly Payments Not Included in the Debt-to-Income Formula

Paid television (cable, satellite, streaming) and internet services. Car insurance. Health insurance and other medical bills. Cell phone services.

Your Debt To Income Ratio: How To Figure It Out

37 related questions found

Is car insurance included in DTI?

Front-end DTI only accounts for monthly housing costs, including rent or mortgage, homeowners association fees, insurance and taxes. It doesn't take into account other expenditures, such as payments on auto loans, student loans, personal loans or credit cards. Back-end DTI accounts for all your monthly debt payments.

What is the average American debt-to-income ratio?

1. In 2020, the average American's debt payments made up 8.69% of their income. To put this into perspective, the average American allocates almost 9% of their monthly income to debt payments, which is a drop from 9.69% in Q2 2019.

Is DTI based on gross or net?

Despite the use of gross income in the DTI calculation, you can't actually pay your bills with gross income, and net income (i.e., your take-home pay) will always be less than the number used in the DTI calculation.

Does DTI include new mortgage?

Your debt-to-income ratio (DTI) helps lenders decide whether to approve your mortgage application. But what is it exactly? Simply put, it is the percentage of your monthly pre-tax income you must spend on your monthly debt payments plus the projected payment on the new home loan.

What is the 28 36 rule?

A Critical Number For Homebuyers

One way to decide how much of your income should go toward your mortgage is to use the 28/36 rule. According to this rule, your mortgage payment shouldn't be more than 28% of your monthly pre-tax income and 36% of your total debt. This is also known as the debt-to-income (DTI) ratio.

How can I lower my debt-to-income ratio fast?

How to lower your debt-to-income ratio
  1. Increase the amount you pay monthly toward your debt. Extra payments can help lower your overall debt more quickly.
  2. Avoid taking on more debt. ...
  3. Postpone large purchases so you're using less credit. ...
  4. Recalculate your debt-to-income ratio monthly to see if you're making progress.

Is a 39 debt-to-income ratio good?

If your DTI is 35% or less, you're doing well. Your repayments are manageable, and you may have room for another financial obligation. If you have a DTI ratio between 36% and 49%, you're not doing too badly—but you have room to improve.

How much income do I need for a 200k mortgage?

What income is required for a 200k mortgage? To be approved for a $200,000 mortgage with a minimum down payment of 3.5 percent, you will need an approximate income of $62,000 annually. (This is an estimated example.)

Are taxes and insurance included in DTI?

DTI is calculated by adding up your monthly debt payments and dividing them by your gross (pre-tax) monthly income. Debts that count toward your DTI include things like: Home loan payments (including principal, interest, taxes, and insurance)

How much debt can I have and still get a mortgage?

A 45% debt ratio is about the highest ratio you can have and still qualify for a mortgage.

What does my debt-to-income ratio need to be to buy a house?

Lenders generally look for the ideal front-end ratio to be no more than 28 percent, and the back-end ratio, including all monthly debts, to be no higher than 36 percent.

How do you calculate household debt?

It's easy:
  1. Calculate all your monthly debt payments – including credit cards, mortgage and child support. ...
  2. Take your gross annual wages and divide them by 12. ...
  3. Take your total monthly payments and divide them by your monthly income.
  4. Move the decimal point two digits to the right to make it a percentage.

Can you get a mortgage with 55% DTI?

FHA loans only require a 3.5% down payment. High DTI. If you have a high debt-to-income (DTI) ratio, FHA provides more flexibility and typically lets you go up to a 55% ratio (meaning your debts as a percentage of your income can be as much as 55%). Low credit score.

What is the average credit card debt in 2020?

The average debt for individual consumers dropped from $6,194 in 2019 to $5,315 in 2020. In fact, the average balance declined in every state.

What percentage of population has over 800 credit score?

About 21.8% of America has a credit score higher than 800 points. If you have a credit score of 800, it likely means that you manage debt well and never miss a loan payment. This makes you an ideal borrower and gives you access to more offers and lower interest rates.

What is the monthly payment on a $200 000 mortgage for 30 years?

On a $200,000, 30-year mortgage with a 4% fixed interest rate, your monthly payment would come out to $954.83 — not including taxes or insurance.

What happens if I pay an extra $500 a month on my mortgage?

Throwing in an extra $500 or $1,000 every month won't necessarily help you pay off your mortgage more quickly. Unless you specify that the additional money you're paying is meant to be applied to your principal balance, the lender may use it to pay down interest for the next scheduled payment.

How much income do you need to qualify for a $300 000 mortgage?

To purchase a $300K house, you may need to make between $50,000 and $74,500 a year. This is a rule of thumb, and the specific salary will vary depending on your credit score, debt-to-income ratio, the type of home loan, loan term, and mortgage rate.

What is the max debt-to-income ratio for a conventional loan?

Conventional loans (backed by Fannie Mae and Freddie Mac): Max DTI of 45% to 50%

Will paying off credit cards lower my debt-to-income ratio?

Paying off that card freed up enough monthly debt obligations to lower our DTI and make our mortgage possible.” In addition to lowering your debt, you can change your DTI by increasing your income. As described in the example above, someone who makes $2,000 each month and pays $1,000 toward loans has a 50% DTI.