Debt-to-Income (DTI) Ratio Calculator
The debt-to-income ratio (DTI) is the ratio of recurring debt vs. gross income on a monthly or annual basis. There are two main types of DTI:
Front-end debt ratio is computed by dividing total monthly housing costs by monthly gross income. Front-end not only includes rental or mortgage payment, but other costs associated with housing like insurance, property taxes, HOA/Co-Op Fee, etc.
Back-end debt ratio is the more all-encompassing debt associated with an individual or household. It includes everything in the front-end ratio dealing with housing costs, along with any accrued monthly debt like car loans, student loans, credit cards, etc. This ratio is commonly defined as the well-known debt-to-income ratio, and is more widely used than front-end ratio.
In the United States, lenders use DTI to qualify borrowers. Normally, the Front-End DTI/Back-End DTI limits for conventional financing are 28/36, the Federal Housing Administration (FHA) limits are 31/43, and the VA loan limits are 41 straight. Please use our House Affordability Calculator to evaluate the debt-to-income ratios and their importance in determining loan amounts for each qualifying household for their purchase of a house.
While DTI ratios are widely used as technical tools by lenders to hand out mortgages appropriately, they can also be used by anyone to evaluate their own personal financial health. Just keep in mind that situations differ. A young doctor who just recently purchased a new house suffocating under mountains of student and mortgage debt is different from someone who has never been to college.
However, everyone wants 0% debt ratio, whether prestigious doctor or minimum wage worker; the higher the total income relative to total debts, the better. Lower debt ratios allow for less risk in the case of interruptions to income, increase in debt, or emergency, such as job loss, server car accident, medical incidents, etc.
In the United States, normally a DTI of 1/3 or less (33%) is considered to be manageable. A DTI of 1/2 or more (50%) is very stressful and dangerous. If so, actions should be taken immediately to lower it, whether to take a second job, cut vacation, or stop dinning out.