
How to Calculate Your Debt to Income Ratio and Why it is Important
Updated: May 19, 2021
To calculate your monthly debt to income ratio- add all of your MONTHLY debt payments and divide the total by your gross monthly income. Gross is BEFORE taxes are taken out.
For example:
Gross income: $6500
Auto loan: $300
Mortgage: $2500
Misc: $250
$3050 ÷ $6500 = 46.93%
The lower the number the better. Anytime you apply for a loan, your debt to income (DTI) will be considered to make a final decision on approval.
Depending on the type of product you are applying for: lenders like to see a dti no higher than 50%
How can you reduce your DTI?
1. More income- part time job, side hustle, etc.
2. Reduce monthly debt- refinance loans, consolidate debt, get rid of unnecessary debt all together, etc.
What questions do you have?