How To Calculate Debt-to-Income Ratio
To calculate your Debt-to-Income (DTI) ratio, follow these steps:
1. Add Up Monthly Debt Payments: List your regular monthly debt obligations. (If you have a copy of your credit report only add up the minimum payments.)
- Mortgage or Rent Payment: If you’re calculating DTI to qualify for a mortgage, use your current rent or anticipated monthly mortgage payment.
- Car Loans or Lease Payments
- Credit Card Payments: Use only the minimum monthly payment for each card.
- Student Loan minimum monthly payment
- Personal Loans
- Child Support or Alimony Payments
- Other Debt Obligations: Include any other recurring debts.
2. Add Up Your Gross Monthly Income:
- Calculate your total monthly pre-tax income, which might include:
- Salary/Wages: Gross income before deductions.
- Freelance or Side Income: Any additional, consistent income sources. (We can only use this income if you’ve received it for at least 2 years.)
- Other Income: If applicable, include rental income, child support, alimony, or investment income (only if it’s reliable and consistent).
3. Divide Debt by Income and Multiply by 100 to Get the Percentage:
Use this formula:
- Divide your Total Income by your Monthly Debt Payments Total then multiply by 100
- For example: If your Total Monthly Income is $5000 and your Monthly Debt Payments Total is $1500 your DIT is 30%
- $1500 / $5000 = 0.3 x 100 = 30%
- A lower DTI ratio, ideally below 43%, is generally preferable for qualifying for a mortgage.
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