Debt-to-Income (DTI) Ratio Calculator
A Surprising Story: The "Hidden" Debt That Stalled a Dream
Priya and Rohan had been saving for years to buy their first home. They had a good income and a healthy down payment. Confident, they applied for a home loan. To their shock, their application was rejected due to a high Debt-to-Income (DTI) ratio. They couldn't understand why.
Using a DTI calculator, they started listing all their monthly payments. They included their car loan and credit card bills, but the DTI was still within limits. Then Priya remembered something: she was a co-signer on her younger brother's student loan. Although he was paying it, the bank legally considered it her debt too. They entered that EMI into the calculator, and the DTI shot up, crossing the bank's acceptable threshold. The "hidden" debt they had overlooked was the problem. This surprising discovery allowed them to take corrective action. After refinancing her brother's loan without her as a co-signer, their DTI dropped, and their home loan was approved a few months later.
Frequently Asked Questions (FAQ)
What is a good DTI ratio?
A DTI of 36% or less is generally considered excellent and favorable by lenders. A ratio between 37% and 43% is often acceptable, but may come with stricter loan terms. A DTI of 50% or more is typically seen as high risk, making it difficult to get new credit. For more detailed benchmarks, you can refer to guidelines from major credit bureaus like Experian.
What is included in the 'Debts' calculation?
Your monthly debts should include all recurring payments that appear on your credit report. This includes your rent or mortgage, car loan EMIs, student loan payments, minimum credit card payments, and any other personal loan installments. Regular monthly expenses like utilities, groceries, and entertainment are typically not included. For more on what lenders consider, see resources from CIBIL.
What is the difference between Front-End and Back-End DTI?
Front-End DTI only considers your housing-related debt (rent or mortgage payment + property taxes and insurance) as a percentage of your income. It specifically measures your housing affordability. Back-End DTI is more comprehensive and includes *all* your monthly debt payments (housing, car, credit card, etc.). Lenders pay more attention to the Back-End DTI as it gives a complete picture of your financial obligations. You can find more on this at Equifax.
How can I lower my DTI ratio?
There are two main strategies to lower your DTI: 1) Increase your Income by finding new sources of revenue or getting a raise, or 2) Decrease your Debts by aggressively paying down your existing loans, especially high-interest ones like credit card debt. Consolidating debt into a single, lower-interest loan can also help reduce your monthly payments. For debt management strategies, you can explore resources from TransUnion or MyFICO.