What Is Debt-To-Income Ratio (DTI)? (2024)

Calculating your debt-to-income ratio is essential to understanding where you’ll stand with lenders before applying. Here’s how to calculate your DTI ratio in a few short steps.

1. Add Up Your Minimum Monthly Payments

To calculate DTI, include your regular, required and recurring monthly payments. Only use your minimum payments – not the account balance or the amount you typically pay. For example, if you have a $10,000 student loan with a $200 minimum monthly payment, you should only include the $200 minimum payment when calculating DTI.

Expenses To Include In Your DTI Calculations

Here are some examples of applicable debt when applying for a mortgage:

• Your rent or monthly mortgage payment
• Any monthly homeowners association (HOA) fees
• Property taxes
• Homeowners insurance payments
• Auto loan payments
• Student loan payments
• Child support or alimony payments
• Credit card payments
• Personal loan payments

Expenses To Exclude From Your DTI Calculations

Certain expenses should be left out of your minimum monthly payment calculation, including the following:

• Utility costs
• Health insurance premiums
• Transportation costs
• Savings account contributions
• 401(k) or IRA contributions
• Entertainment, food and clothing costs

Total Monthly Payments Example

Here’s an example of calculating your total monthly payments to determine your DTI. Imagine you have the following monthly expenses:

• Rent: $500
• Student loan minimum payment: $125
• Credit card minimum payment: $100
• Auto loan minimum payment: $175

Add $500, $125, $100 and $175 together, and the total is $900 in minimum monthly payments.

2. Divide Your Monthly Payments By Your Gross Monthly Income

Your gross monthly income is the total pretax income you earn each month. If another borrower is applying with you, you should factor in their income and debts, too.

Once you’ve determined the total gross monthly income for everyone on the loan, divide the total of minimum monthly payments by the gross monthly income.

3. Convert Your Result To A Percentage

Your initial result will be a decimal. To express your DTI ratio as a percentage, multiply the result by 100. In this example, your gross monthly income is $3,000, and your minimum monthly payment total is $900. When you divide $900 by $3,000, you’ll get 0.30. Multiply 0.30 by 100 to get 30, making your DTI ratio 30%.

You’d likely meet a lender’s DTI requirement because the DTI ratio falls below 43%.