How do you calculate your debt-to-income ratio (DTI)?

What counts as a monthly debt payment

Debt-to-income ratio (DTI) compares what you owe each month to what you earn each month, but it only counts real debt obligations, not everyday living expenses. Lenders want to see recurring payments you're contractually obligated to make: your rent or mortgage, car loans, student loans, personal loans, minimum credit card payments, and alimony or child support if it applies to you.

It does not include groceries, utilities, insurance premiums, phone bills, subscriptions, or any expense you could choose to cut. Those are real costs, but they aren't debt, and folding them into your total produces a number no lender actually uses.

• Included: mortgage or rent, auto loans, student loans, personal loans, minimum credit card payments, alimony or child support
• Excluded: groceries, utilities, insurance, subscriptions, phone bills, and any expense without a fixed monthly debt payment

The formula: gross income, not net

DTI = (total monthly debt payments / gross monthly income) x 100.

Gross monthly income is your pay before taxes, health insurance, retirement contributions, or any other deduction comes out, the number on your offer letter or the top line of your pay stub, not your take-home direct deposit. Lenders use gross because it standardizes income across people with very different tax situations and benefit elections.

Worked example: $6,500 income, $2,500 in monthly debt

Say your gross monthly income is $6,500. Your monthly debts are $1,800 for rent, a $350 car payment, a $200 student loan payment, and a $150 minimum payment on a credit card. Add those up: $1,800 + $350 + $200 + $150 = $2,500 in total monthly debt.

Divide debt by income: $2,500 / $6,500 = 0.3846. Multiply by 100 and your DTI is 38.46%, which most lenders round to about 38.5%.

That figure sits above the 36% threshold most lenders treat as comfortable, but below the roughly 43 to 45% ceiling many conventional mortgage lenders use as a hard cutoff. In practice, this borrower could likely still qualify for a mortgage, but would have less room for a large loan amount and might see a higher rate than someone with a lower ratio.

What counts as a good DTI

There's no single pass-or-fail number, but lenders generally sort DTI into three bands. Under 36% is considered strong and gives you the most room to qualify for financing at competitive rates. Between 36% and 43% is workable but starts to limit your options, and above roughly 43 to 45% is where many conventional mortgage lenders draw a hard line, though some programs, FHA loans, for instance, will go higher with compensating factors like a strong credit score or a large down payment.

Mortgage lenders often split this into two figures: front-end DTI, which is just your housing payment divided by gross income (a common target is 28% or less), and back-end DTI, which is the all-debt figure this guide walks through. When people cite a '43% DTI cutoff,' they almost always mean back-end.

• Under 36%: generally considered good, most financing options open
• 36% to 43%: workable, but rates and loan amounts may be limited
• Above roughly 43% to 45%: many conventional mortgage lenders cap here; other loan programs may allow more with compensating factors

How to lower your DTI

Two levers move this number: pay down debt, or increase income. Both work, but they don't move the ratio the same way.

Paying off an entire account does more than spreading the same extra payment across several balances, because DTI counts the required monthly payment, not the balance itself. In the example above, paying off the $200 student loan completely, not just a chunk of it, drops total monthly debt to $2,300. Recalculate: $2,300 / $6,500 = 35.38%, which now crosses under the 36% good threshold. Putting that same $200 toward partial payments on three different cards wouldn't have the same effect, because none of those minimum payments disappear.

On the income side, a $500 monthly raise against the original $2,500 in debt brings DTI to $2,500 / $7,000 = 35.71%, almost the same improvement. Raises and side income take longer to arrange than paying off a small account, but they also raise the ceiling on how much you can eventually borrow, not just the ratio itself.

Common mistakes

A handful of errors show up constantly when people calculate DTI on their own. Knowing them avoids a wrong self-assessment before you ever talk to a lender.

• Using net income instead of gross. Take-home pay is smaller than gross pay, so dividing by it inflates your DTI and can make your finances look worse than a lender will actually calculate.
• Forgetting a debt. Personal loans, a co-signed loan you're actually paying, and student loans in deferment are still counted by most lenders, even when your current out-of-pocket payment is low or zero.
• Including non-debt expenses. Groceries, insurance, and utilities are real monthly costs, but they aren't debt, and adding them in produces a number no lender uses to evaluate you.
• Using your card's statement balance instead of the minimum payment. For credit cards, DTI is based on the required minimum payment (or a standardized percentage lenders apply), not the amount you personally choose to pay each month.