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Common Questions About Debt-to-Income Ratios

In addition to your credit score, your debt-to-income (DTI) ratio is an important part of your overall financial health. Calculating your DTI may help you determine how comfortable you are with your current debt, and also decide whether applying for credit is the right choice for you.

When you apply for credit, lenders evaluate your DTI to help determine the risk associated with you taking on another payment. Use the information below to calculate your own debt-to-income ratio and understand what it may mean to lenders.

Common Questions About Debt-to-Income Ratios

Why is debt-to-income important?

Lenders use the debt-to-income ratio as a way to measure your ability to manage the payments you make each month and repay the money you have borrowed.

What is the formula for calculating my debt-to-income ratio?

It is calculated by dividing your total recurring monthly debt by your gross monthly income(s) (monthly income(s) before taxes or other deductions).

What monthly payments are included in my debt-to-income ratio?

These are some examples of payments included in debt-to-income:

  • Monthly mortgage payments (or rent)
  • Monthly expense for real estate taxes
  • Monthly expense for home owner’s insurance
  • Monthly car payments
  • Monthly student loan payments
  • Minimum monthly credit card payments
  • Monthly time share payments
  • Monthly personal loan payments
  • Monthly child support payment
  • Monthly alimony payment
  • Any Co-Signed Loan monthly payments

Check with your lender if you are not sure about the items considered when calculating your debt-to-income ratio.

What payments should not be included in debt-to-income ratio?

The following payments should not be included:

  • Monthly utilities, like water, garbage, electricity or gas bills
  • Car Insurance expenses
  • Cable bills
  • Cell phone bills
  • Health Insurance costs
  • Groceries/food or entertainment expenses

Check with your lender if you are not sure about the items considered when calculating your debt-to-income ratio.

What payment do I use for my credit card debts, the minimum payment required or what I actually pay monthly?

Enter only the minimum monthly payment required each month.

What sources of income are considered?

Lenders consider the following sources of income:

  • Wages
  • Salaries
  • Tips and bonuses
  • Pension
  • Social Security
  • Child support and alimony
  • Any other additional income

How does my debt-to-income ratio affect my ability to get a loan?

Lenders calculate your DTI to determine the risk associated with you taking on an additional payment. A low debt-to-income ratio reflects a good balance between your income and debt.

What is considered a good debt-to-income ratio?

Lenders consider different ratios, depending on the size, purpose, and type of loan. 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.  For more on Wells Fargo’s debt-to-income standards, learn what your debt-to-income ratio means.

Use our calculator to check your debt-to-income ratio

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You do not need to share alimony, child support or separate maintenance income unless you want it considered when calculating your result.