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?

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