How is debt-to-income ratio calculated?

Q: How is debt-to-income ratio calculated?

Debt-to-income ratio is total monthly debt payments divided by gross monthly income, then multiplied by 100. Monthly debt can include housing, school and auto loans, court-ordered support, and the minimum due on credit cards. It does not include utilities, phone, or internet.

Short answer

is total monthly debt payments divided by gross monthly income, then multiplied by 100. Monthly debt can include housing, school and auto loans, court-ordered support, and the minimum due on credit cards. It does not include utilities, phone, or internet.

Full explanation

Fannie Mae's consumer formula is: add the debts you pay each month, divide by income before taxes, then multiply by 100.

Counted debts can include the housing payment, school loans, auto loans, court-ordered support, and the minimum due on credit cards. Utility bills and phone or internet service are left out of that monthly-debt total.

This is a consumer-education formula from Fannie Mae's financial-basics material. It is not a promise that every lender will count the same items, and it is not an approval threshold. Lenders can treat income and debts differently by program. Use the ratio to understand the arithmetic; do not treat a particular percentage as a rule that guarantees or denies a mortgage.

Sources reviewed