How to Calculate DTI for Loans | RI Mortgage Brokers

When you start thinking about buying a house, one big question comes up: how do brokers decide if you can afford it? The answer almost always points back to your Debt-to-Income ratio, better known as DTI. But here’s the truth. Most people don’t really understand DTI until they apply for a mortgage and get blindsided. They either guess the number, forget to count certain debts, or confuse net income with gross income. That leads to frustration. The good news is that the math itself is simple. You can calculate DTI at home, with nothing more than a calculator and a list of your debts. 

In this guide, we’ll go step by step. We’ll explain what brokers look for, what numbers count, and how you can adjust your finances to improve your chances of approval.

And yes, we’ll give examples that apply right here in Rhode Island, where brokers help borrowers every day.

Why Debt-to-Income Ratio Matters So Much

So, why does DTI carry so much weight? Well, the answer is simple—but also important. Brokers want to see if you’re living within your means or stretched way too thin.

Think about it this way. Imagine you earn $6,000 a month. Now, let’s say $3,500 of that income disappears into car payments, credit card bills, and student loans. Suddenly, you’re left with only $2,500 for everything else. And remember, that “everything else” includes your new mortgage payment.

Here’s the thing—on paper, your salary might look impressive. However, when debts eat up more than half, your financial picture changes fast. That’s exactly why brokers put so much weight on DTI.

And it’s not just about whether you earn “enough.” Instead, it’s about whether your debt and income stay balanced. In other words, can you reasonably manage a mortgage without being crushed by other obligations?

Learning how to calculate DTI early means fewer surprises when you apply. Plus, it gives you time to adjust—whether that means paying down debt, boosting income, or both—before you sit down with a broker.

The Formula to Calculate DTI

Here’s the simple math:

DTI = (Total Monthly Debt ÷ Gross Monthly Income) × 100

That’s it. You divide debt by income and turn it into a percentage.

But don’t let the formula fool you. The details matter. What counts as debt? What counts as income? Get those wrong and your DTI number won’t match the broker’s. Let’s break it down piece by piece.

What Counts as Debt in the Calculation

When you calculate DTI, you’re not just looking at your mortgage. Instead, you’re adding every fixed monthly obligation that appears on your credit report. Each category matters, and brokers review them carefully. Let’s go point by point.

• Mortgage or Rent Payments

Always include your housing payment. If you rent, it’s the full rent amount. If you already own it, it’s your current mortgage. And here’s the key—if you’re refinancing, you must plug in the expected new mortgage payment instead of the old one. That ensures your DTI reflects your real future costs, not outdated numbers.

• Car Loans or Leases

Whether your payment is $300 or $700 each month, it must be counted. Brokers don’t focus on how many months remain in the loan. Instead, they only care about the monthly amount you’re responsible for. So, even if you have just six payments left, that $400 still weighs on your DTI calculation until it’s completely gone.

• Student Loans

Even if your loans are currently deferred, most brokers will assign a payment for them. This is usually a percentage of the balance or a standard figure set by guidelines. And here’s what surprises many borrowers—deferred does not mean ignored. These payments almost always show up in your DTI calculation, and they can tip the scales if you’re not prepared.

• Credit Cards

With credit cards, brokers don’t use the full balance. They only count the minimum monthly payment required. That might sound like good news, but here’s the catch—those small numbers add up fast. Three or four cards with minimums of $50 or $75 each can raise your DTI more than you’d expect. That’s why trimming balances before applying can make a noticeable difference.

• Personal Loans

Any installment loan you’ve taken—whether for debt consolidation, medical expenses, or even a vacation—goes into the calculation. It doesn’t matter what the loan was for. If there’s a fixed monthly payment tied to it, brokers include it in your DTI. Even small personal loans, like $100 a month, can add weight.

• Other Obligations

Child support, alimony, and court-ordered obligations always count. They’re legally binding, and brokers factor them in without exception. Many borrowers forget these when calculating on their own, which makes their personal number look better than the broker’s official version.

What Counts as Income in the Calculation

On the other side, you’ve got income. And brokers tend to be flexible, but they want proof.

• Base Salary

It is your gross monthly pay before taxes. It’s the core of your income calculation.

• Bonuses and Commissions

If you’ve received them consistently for at least two years, brokers will often average them into your income.

• Overtime

Same story. Steady overtime can count, but random extra hours usually won’t.

• Self-Employment Income

For freelancers and business owners, brokers average your past two years of tax returns.

• Rental Income

If it’s documented and stable, it can help boost income.

• Military Allowances

Housing and food allowances often qualify.

Key point: brokers almost always use gross income, not net. That’s one of the most common mistakes people make when they calculate DTI on their own.

Front-End vs. Back-End Ratios

When brokers talk about DTI, they’re not always talking about just one number. There are two.

• Front-End DTI

This ratio looks only at housing. It adds up your mortgage payment, taxes, insurance, and HOA dues, then divides that by your income. It shows how much of your pay goes toward keeping a roof over your head.

• Back-End DTI

This one is broader. It includes every debt—housing, car loans, credit cards, student loans—and divides the total by income.

Most brokers put the most weight on the back-end ratio. It’s the clearest picture of your full financial balance.

What DTI Do brokers Want to See?

The answer depends on the loan program.

• Conventional loans usually want 43% or lower.
• FHA loans can stretch to 50% if you have compensating factors.
• VA loans often suggest 41%, but approvals regularly happen at higher rates.
• USDA loans prefer 41% or less.

Generally, anything under 36% is considered strong. Anything over 50% makes approval tough. That’s why learning how to calculate DTI is step one in figuring out your buying power.

Step-by-Step Example: Rhode Island Borrower

Let’s make it real. Say you live in Rhode Island and earn $6,000 gross each month.

Your debts look like this:

• Mortgage payment (including taxes/insurance): $1,600
• Car loan: $400
• Student loan: $250
• Credit cards: $150

That’s a total of $2,400 in monthly debt.

Now, calculate DTI:

DTI = ($2,400 ÷ $6,000) × 100 = 40%

That puts you right in range for most programs, especially FHA or VA. For a conventional loan, you might still qualify, but the rest of your application will matter more.

This simple math is why you should always calculate DTI before applying—it saves time and sets realistic expectations.

Common Errors When Borrowers Calculate DTI

Even though the formula is easy, mistakes are common.

• Using net income instead of gross.
• Forgetting small loans or credit card minimums.
• Counting bills like groceries or utilities.
• Skipping obligations like child support.
• Estimating income without documents.

Each error makes your ratio look different from what the broker will see. At RI Mortgage Brokers, we always run the numbers carefully for clients so they don’t get caught off guard.

Why RI Mortgage Brokers Focuses on DTI

Here’s something we’ve noticed time and time again. Many Rhode Islanders walk into our office feeling confident and ready to buy. They’ve saved some money, checked their credit, and even picked out a few homes online.

But then, when we sit down and run the numbers, reality hits. Their debt-to-income ratio is way off from what they expected. And just like that, their dream of quick approval gets delayed.

So, why does this happen? Often, buyers don’t realize what counts as “debt” in the calculation. They forget about student loans still in deferment. Or they underestimate the impact of car leases and minimum credit card payments. Transition after transition, the numbers start to add up—and the DTI suddenly looks much higher than they thought.

That’s exactly why, at RI Mortgage Brokers, we put so much emphasis on education. We don’t just hand clients a percentage and move on. Instead, we walk them through the process, step by step.

How to Improve Your DTI

So, what if your number looks too high? Don’t panic. There are ways to bring it down.

• Pay off smaller debts first. Even removing a $50 credit card payment lowers your ratio.
• Hold off on new loans. Don’t buy a car right before applying.
• Increase income. Side jobs or overtime can help.
• Refinance. Consolidating debt into a lower monthly payment sometimes works.

Each change may look small, but when you calculate DTI again, you’ll see the progress.

Rhode Island Example: Median Income Family

Let’s look at a typical family in Rhode Island earning $85,000 a year. That’s about $7,083 gross per month.

If they carry $2,800 in debt payments, their ratio is:

DTI = ($2,800 ÷ $7,083) × 100 = 39.5%

That’s solid for FHA or VA approval. It’s even workable for conventional financing in many cases.

Now imagine they want to buy a $300,000 house. They’ll wonder about down payments and affordability. See: What is a Good Down Payment for a $300,000 House?

Once again, DTI ties directly into the answer.

How Income Impacts DTI More Than You Think

Another key point: income changes the ratio dramatically. If debts stay the same but income rises, the ratio falls.

Say you make $70,000 a year, or about $5,833 a month. With $2,000 in monthly debts, your DTI is 34%. Now, increase that income to $85,000 with the same debt, and your DTI drops to 28%.

This is why higher income can unlock bigger buying power. See: How Much House Can I Afford if I Make $70,000 a Year?

It’s not just about earning more money—it’s about what that money does to your ratio.

Final Thoughts: Why DTI Shapes Your Approval Odds

Here’s the truth: brokers see DTI as one of the most important numbers in your application. It shows whether you’re financially balanced or stretched too thin.

The formula is straightforward, but the details matter. You must know what to include, how to use gross income, and how to avoid mistakes.

For Rhode Island borrowers, Mortgage Brokers is here to guide the process. We’ll help you calculate DTI, explain the impact of each debt, and find the loan program that fits best.

So, before you take the next step toward homeownership, sit down and run the numbers. Calculate DTI carefully. With the right ratio, the path to approval becomes much clearer.

FAQs 

Does refinancing change how I calculate DTI?

Yes. Your new estimated mortgage replaces your old one. That’s why refinancing often lowers your DTI—it reduces monthly payments.

Can I use combined income when calculating DTI?

Suppose two people apply together, absolutely. Add both gross incomes before dividing by total debt. That creates a more accurate ratio for joint applications.

Do brokers verify every debt?

Yes. They check your credit report and sometimes request additional documentation. Even if you forget a debt, it will show up. That’s why accuracy is crucial when you calculate DTI yourself.