Calculate Your Debt-to-Income Ratio | Wells Fargo (2024)

FAQs

Calculate Your Debt-to-Income Ratio | Wells Fargo? ›

How do I calculate my debt-to-income ratio? To calculate your DTI, you add up all your monthly debt payments and divide them by your gross monthly income. Your gross monthly income is generally the amount of money you have earned before your taxes and other deductions are taken out.

How do I calculate my debt-to-income ratio? To calculate your DTI, you add up all your monthly debt payments and divide them by your gross monthly income. Your gross monthly income is generally the amount of money you have earned before your taxes and other deductions are taken out.

Your particular ratio in addition to your overall monthly income and debt, and credit rating are weighed when you apply for a new credit account. Standards and guidelines vary, most lenders like to see a DTI below 35─36% but some mortgage lenders allow up to 43─45% DTI, with some FHA-insured loans allowing a 50% DTI.

Your debt-to-income (DTI) ratio is how much money you earn versus what you spend. It's calculated by dividing your monthly debts by your gross monthly income. Generally, it's a good idea to keep your DTI ratio below 43%, though 35% or less is considered “good.”

You can lower DTI by decreasing your monthly payment amounts, even if you do not reduce your total amount owed. The easiest way to reduce your monthly payments is to refinance existing loans to lower your interest rate.

35% or less: Looking Good - Relative to your income, your debt is at a manageable level. You most likely have money left over for saving or spending after you've paid your bills. Lenders generally view a lower DTI as favorable.

A company's debt ratio can be calculated by dividing total debt by total assets. A debt ratio of greater than 1.0 or 100% means a company has more debt than assets while a debt ratio of less than 100% indicates that a company has more assets than debt.

Key takeaways

Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.

It does not include health insurance, auto insurance, gas, utilities, cell phone, cable, groceries, or other non-recurring life expenses. The debts evaluated are: Any/all car, credit card, student, mortgage and/or other installment loan payments.

Your debt-to-income ratio (DTI) compares how much you owe each month to how much you earn. Specifically, it's the percentage of your gross monthly income (before taxes) that goes towards payments for rent, mortgage, credit cards, or other debt.

Does debt-to-income ratio affect credit score? ›

Debt-to-credit and debt-to-income ratios can help lenders assess your creditworthiness. Your debt-to-credit ratio may impact your credit scores, while debt-to-income ratios do not. Lenders and creditors prefer to see a lower debt-to-credit ratio when you're applying for credit.

Ideally, financial experts like to see a DTI of no more than 15 to 20 percent of your net income. For example, a family with a $250 car payment and $100 of monthly credit card payments, and $2,500 net income per month would have a DTI of 14 percent ($350/$2,500 = 0.14 or 14%).

Refinance debt.

If you qualify for better rates than you currently pay, your monthly payment may be lower, improving your DTI. You could also lower your monthly payment by extending the loan term, but this comes at the cost of higher total interest.

A 0% debt-to-income ratio (DTI) means that you don't have any debts or expenses, which does not necessarily mean that you are financially ready to apply for a mortgage. In addition to your DTI, lenders will review your credit score to assess the risk of lending you money.

To calculate your debt-to-income ratio, add up all of your monthly debts – rent or mortgage payments, student loans, personal loans, auto loans, credit card payments, child support, alimony, etc. – and divide the sum by your monthly income.

The monthly debt payments included in your back-end DTI calculation typically include your proposed monthly mortgage payment, credit card debt, student loans, car loans, and alimony or child support. Don't include non-debt expenses like utilities, insurance or food.

* Monthly rent payment is usually not included in DTI when applying for a home loan since it is assumed current rent will be replaced by future mortgage.

Average American debt payment: 9.8% of income

The Federal Reserve tracks the nation's household debt payments as a percentage of disposable income. The most recent debt payment-to-income ratio, from the fourth quarter of 2023, is 9.8%.

According to the 28/36 rule, you should spend no more than 28% of your gross monthly income on housing and no more than 36% on all debts. Housing costs can include: Your monthly mortgage payment. Homeowners Insurance. Private mortgage insurance.