Debt-to-Income Ratio Calculator
What is Debt-to-Income (DTI) Ratio?
The Debt-to-Income (DTI) ratio is a financial metric used to assess an individual’s ability to manage monthly debt payments relative to their gross monthly income. It is calculated by dividing the total monthly debt payments by the gross monthly income and expressing it as a percentage.
Calculation: DTI Ratio = (Total Monthly Debt Payments / Gross Monthly Income) × 100
Example: If you have $2,000 in monthly debt payments and a gross monthly income of $5,000, your DTI ratio would be 40%.
DTI Calculator
Importance of DTI in Real Estate Investment
The DTI ratio helps lenders evaluate a borrower's financial stability and ability to handle new mortgage payments. A lower DTI ratio indicates a manageable level of debt relative to income, making a borrower more attractive for a mortgage.
Current DTI Standards in the U.S. (2024)
- Overall Borrowers: Approximately 36%
- First-Time Homebuyers: Around 38%
- High-Income Borrowers: Around 30%
- Low-Income Borrowers: Often exceeding 40%
Strategies to Improve DTI
1. Reduce Debt:
- Pay Down Existing Debt
- Consolidate Loans
- Avoid New Debt
2. Increase Income:
- Boost Earnings
- Improve Financial Stability