Your debt-to-income ratio, or DTI, is how much of your income already goes to debt: total monthly debt payments divided by gross monthly income. Pay $1,800 a month toward loans and cards on $6,000 of gross income, and your DTI is 30%. Lenders grab it first when sizing up whether you can take on more.
Picture a loan officer, pay stub in one hand, credit report in the other, punching numbers into a calculator. This is the sum. Below: how to run it yourself, what counts, the thresholds lenders use, and why it’s gross income here when your savings rate uses take-home.
How to calculate DTI
It’s one line of math, honestly:
DTI = total monthly debt payments ÷ gross monthly income
Grab last month’s statements. Total the required payments, divide by gross (pre-tax) monthly income, multiply by 100. Here’s how that shakes out for a made-up renter:
| Monthly debt payment | Amount |
|---|---|
| Rent or mortgage | $1,200 |
| Car loan | $350 |
| Student loan | $150 |
| Credit card minimums | $100 |
| Total monthly debt | $1,800 |
On $6,000 of gross monthly income, that’s $1,800 ÷ $6,000 = 30% DTI. Notice what’s missing: balances. That $20,000 car loan shows up as $350, its monthly payment, full stop. DTI tracks cash leaving each month, not the size of the pile behind it.
What counts, and what doesn’t
In the mix:
- Rent or mortgage, the big one for most people
- Car loans and student loans
- Minimum credit card payments (the minimum, not the balance)
- Personal loans and lines of credit
- Court-ordered obligations like child support or alimony
Left out: groceries, utilities, gas, insurance, Netflix. Real money, just not what a lender means by “debt.” That’s the line between DTI and your fixed-cost ratio, which sweeps in every committed recurring cost, loan or not. DTI is the narrower cousin, built for lenders.
Gross income, not take-home
Here’s where folks trip up. DTI runs on your gross income, before taxes. A savings rate works the other way, on take-home pay, the money that actually lands in your account.
Why? Lenders want every applicant on the same footing, whatever their tax situation, so they go with gross. If you’re trying to predict what a lender will see, use pre-tax pay. Plug in take-home by accident and your DTI comes out worse than the lender’s number. Wikipedia’s page on the debt-to-income ratio says the same about gross income, and splits DTI two ways that lenders use: front-end (housing costs only) and back-end (every debt payment).
What lenders look for
A few well-worn numbers do most of the work:
| DTI range | How it’s generally read |
|---|---|
| Below 36% | Healthy, with comfortable room to borrow |
| 36% to 43% | Doable, but expect a closer look |
| Above 43% | Where many mortgage lenders start hesitating |
The 36% line usually travels with a sidekick: keep housing alone under about 28% of income. 43% pops up a lot as a mortgage cutoff, though programs and lenders differ. Lower is always safer. You get approved more easily, and you’ve got slack if your hours get cut or the furnace dies.
And a high DTI matters beyond loan applications. It means a big chunk of every paycheck is already spoken for. That’s why it feeds your overall financial health score, next to your savings rate and net worth.
How to lower it
It’s a fraction, so you’ve got two moves. Shrink the payments on top, or grow the income underneath.
Pay off a balance and its monthly payment vanishes, which is why killing one credit card can drop your DTI more than you’d guess. Skip new loans in the months before a big application, so the top doesn’t creep up. A raise or a side gig lifts the bottom. House hunting? The months before you apply are the time to work the number down.
How Skwad shows your debt picture
Set your gross income in Sight’s income profile and it sits right beside your recurring obligations. Every piece of the DTI math in one spot. No digging through five statements and a crumpled pay stub. As balances drop and loans get paid off, the picture updates, and you get to watch committed payments shrink against what you earn.
See your income and obligations in one place
Get started with SkwadFrequently asked questions
How do I calculate my debt-to-income ratio?
List every required monthly debt payment (mortgage or rent, car and student loans, card minimums, anything else you borrowed) and add them up. Divide by gross monthly income, your pay before tax comes off. Multiply by 100. So $1,800 of payments against $6,000 gross works out to 30%.
What is a good debt-to-income ratio?
Short answer: under about 36%, with housing alone under roughly 28% of gross income. Lots of mortgage lenders will say yes up to around 43%, and a few programs stretch past it. Lower still wins, though. More room to borrow, more slack at month’s end.
Does DTI use gross or net income?
Gross income, before taxes. This is the opposite of a savings rate, which is most useful on take-home pay. Lenders stick with gross so every applicant is measured the same way. If you want to see what a lender will see, use your pre-tax pay.
What debts count in a DTI calculation?
Recurring required payments. That’s rent or mortgage, car loans, student loans, credit card minimums, personal loans, and obligations like child support. Groceries, utilities, and subscriptions stay out. They hit your budget, sure, but they aren’t debt payments.
How can I lower my debt-to-income ratio?
Shrink the top or grow the bottom. Pay off a balance and its monthly payment disappears. Hold off on new loans before a big application. Or earn more. Card minimums count, so wiping out even one card can pull your DTI down noticeably.
Know your number before a lender does
Your DTI is one of the first things a lender works out. Beat them to it. Track it, chip away at it, and walk into the application already knowing the answer. Open Sight in Skwad to set your income profile and watch your obligations shrink against it.
