What is a good debt-to-income ratio?

Most lenders prefer a debt-to-income ratio of 36% or lower. A ratio between 37-43% is generally acceptable for most loans, while anything above 43% may limit your borrowing options and indicate financial strain.

What counts as debt in DTI calculation?

Include all minimum monthly debt payments: credit cards, student loans, auto loans, mortgages, personal loans, and other recurring debt obligations. Do not include utilities, insurance, or groceries.

Should I use gross or net income for DTI?

Always use gross monthly income (before taxes) when calculating debt-to-income ratio. This is what lenders use to assess your borrowing capacity.

How can I improve my debt-to-income ratio?

You can improve DTI by increasing income through raises or side jobs, paying down existing debts faster, or avoiding new debt. Focus on high-interest debt first for maximum impact.

What DTI ratio do I need for a mortgage?

For conventional mortgages, most lenders prefer DTI ratios of 43% or lower, though some may accept up to 45%. FHA loans may allow higher ratios with compensating factors.

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How to Calculate Your Debt-to-Income Ratio

Learn the step-by-step process to calculate your DTI ratio and understand what lenders look for.

Last Updated: September 7, 2025 | Reviewed by: Sabina Shao, CEO & Financial Education Expert

Data Sources: Consumer Financial Protection Bureau, Fannie Mae Guidelines, Freddie Mac Standards

Quick DTI Calculator

Gross Monthly Income ($)

Total Monthly Debt Payments ($)

Step-by-Step DTI Calculation

1Calculate Your Gross Monthly Income

Add up all your monthly income sources before taxes:

Base salary or wages
Bonuses and commissions
Rental income
Investment income
Alimony or child support
Other regular income sources

2List All Monthly Debt Payments

Include minimum monthly payments for:

Credit card minimum payments
Student loan payments
Auto loan payments
Mortgage or rent payments
Personal loan payments
Home equity loan payments

Note: Don't include utilities, insurance, groceries, or other living expenses.

3Apply the DTI Formula

DTI = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100

Example: If you earn $5,000/month and have $1,500 in debt payments:
DTI = ($1,500 ÷ $5,000) × 100 = 30%

Debt-to-Income Ratio Key Takeaways

DTI ratio is calculated as total monthly debt payments divided by gross monthly income
Lenders prefer DTI ratios of 36% or lower for the best loan terms and approval odds
Include all minimum debt payments but exclude living expenses like utilities and groceries
You can improve DTI by increasing income, paying down debt, or avoiding new debt
Different loan types have different DTI requirements - mortgages typically allow up to 43%
A lower DTI ratio indicates better financial health and borrowing capacity

DTI Ratio Quick Facts

Excellent DTI Range:0-36%

Preferred range for most lenders and best loan terms

Good DTI Range:37-43%

Generally acceptable for most loan types

Maximum for Mortgages:43-45%

Conventional mortgage limit, FHA may allow higher with compensating factors

High Risk Threshold:50%+

Indicates potential financial stress and limited borrowing options

DTI Ratio at a Glance

What It Measures:Your monthly debt burden relative to income - a key indicator of financial health

Income to Use:Gross monthly income (before taxes) including all regular income sources

Debts to Include:All minimum monthly debt payments - credit cards, loans, mortgages

Improvement Strategy:Increase income, pay down high-interest debt, avoid new debt obligations

Lender Preferences:36% or lower preferred, up to 43% acceptable, above 43% limits options

Tips to Improve Your DTI Ratio

intermediate Level

1
Focus on paying down high-interest debt first to reduce monthly payments most efficiently
2
Consider a debt consolidation loan to potentially lower monthly payments and interest rates
3
Avoid taking on new debt while working to improve your DTI ratio
4
Increase your income through side hustles, overtime, or asking for a raise
5
Make bi-weekly payments on loans to pay them off faster and reduce monthly averages
6
Consider the debt avalanche or debt snowball method for systematic debt reduction