Debt to Income Ratio Example

Definition: Debt to Income (DTI) Ratio is used to calculate the percentage of a consumer's monthly income that goes toward paying debts, which can include certain taxes, fees, insurance premiums, car loans, credit card payments, etc.

Formula:

Debt to Income = Monthly fixed expenses / Gross monthly income

Example 1:
If you have Yearly Gross Income of $24,000 and Monthly liabilities of $200. Then, the Monthly Income would be: 24,000 / 12 = $2,000 and the DTI ratio = 200 / 2,000 = 10%

Example 2:
If you earn $3,000 per month and have a mortgage expense of $500, taxes of $300 and insurance expenses of $100. Then, the debt-to-income ratio is: (500 + 300 + 100) / 3,000 = 0.3 = 30%

Example 3:
Calculate the DTI ratio, given the following information:
Car loan $500
Personal loan $100
Child support $200
Credit card debt repayments $300
House payments: Mortgage $2,500
Home insurance $200
Gross household income $10,000

Solution:
Personal debt repayments = 500 + 100 + 200 + 300 = $1,100
Total house payments = 2,500 + 200 = $2,700
Total debts = Debt repayments + house payments = 1,100 + 2,700 = $3,800
DTI ratio = 3,800 / 10,000 = 38%

* Next: Debt to Equity Ratio Formula & Example
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