How It Works

Debt-to-income (DTI) ratio compares your monthly debt payments to your gross monthly income. Lenders use this to assess whether you can handle additional debt, but it’s also a useful personal benchmark.

Syntax

=total_monthly_debt_payments / gross_monthly_income

Format result as percentage.

Example

Monthly Debts:

Mortgage/Rent: $1,500
Car Payment: $400
Student Loans: $300
Credit Card Minimums: $150
Total: $2,350

Gross Monthly Income: $6,500

Formula: =2350/6500

Result: 36% DTI

DTI Benchmarks

DTI Range	Interpretation
Under 20%	Excellent - lots of breathing room
20-35%	Good - healthy debt load
36-43%	Acceptable - typical maximum for mortgages
44-50%	High - may struggle with unexpected expenses
Over 50%	Critical - debt is consuming too much income

Two Types of DTI

Front-End DTI (Housing Only)

Used specifically for mortgage qualification:

=housing_costs / gross_income

Includes: mortgage principal, interest, taxes, insurance (PITI)

Target: Under 28%

Back-End DTI (All Debt)

Total debt obligations:

=(housing + all_other_debt) / gross_income

Target: Under 36% (some lenders allow up to 43%)

Setting Up a DTI Calculator

A	B	C
Monthly Debts
Mortgage/Rent	$1,500
Car Payment	$400
Student Loans	$300
Credit Cards	$150
Other Debt	$0
Total Debt	=SUM(B2:B6)

Gross Income	$6,500

DTI Ratio	=B7/B9

What Counts as Debt?

Include:

Mortgage or rent
Car loans/leases
Student loans
Credit card minimum payments
Personal loans
Child support/alimony
Other loan payments

Don’t Include:

Utilities
Insurance (unless part of mortgage)
Groceries, gas, etc.
Subscriptions
Savings contributions

Improving Your DTI

Two approaches - the formula shows both:

Reduce Debt Payments

=new_lower_debt / same_income

Increase Income

=same_debt / higher_income

Impact Calculator:

=(current_debt - debt_reduction) / current_income

vs.

=current_debt / (current_income + income_increase)

Mortgage Affordability

Use DTI to estimate how much house you can afford:

=gross_income * 0.28 - current_housing_debt

This gives you target maximum for PITI (principal, interest, taxes, insurance).

Example:

Income: $6,500/month
Target 28% front-end DTI
Available for housing: $6,500 × 0.28 = $1,820/month

Pro Tips

Use gross income (before taxes), not take-home pay
Include all earners if applying jointly for a loan
Minimum payments only for credit cards - not your actual payment
Check before applying - know your DTI before lenders calculate it
Temporary debt (12 months or less remaining) may be excluded by some lenders

Common Errors

Using net income: DTI should use gross (pre-tax) income
Missing debts: Include ALL recurring debt obligations
Including non-debt expenses: Utilities, food, etc. don’t count as debt

Debt-to-Income Ratio