How to Use This Calculator
- 1
Enter Monthly Income
Input your total gross income per month before any deductions.
- 2
List Monthly Debt Payments
Enter the sum of all existing monthly debt obligations — credit card minimums, car loans, student loans, etc.
- 3
Specify Desired Loan Amount
Enter the principal amount you are considering borrowing.
- 4
Enter Annual Interest Rate
Input the annual interest rate for the new loan as a percentage.
- 5
Set the Loan Term
Enter the repayment period in months.
- 6
Review Affordability Metrics
The calculator displays your Debt-to-Income Ratio, Monthly Loan Payment, Total Monthly Debt, and Income After Debt. The insights panel shows your DTI status, borrowing cost, and remaining capacity.
Example Calculation
A prospective borrower earning $5,000/month with $800 in existing debts considers a $20,000 loan at 6% for 36 months.
Monthly Income
$5,000
Monthly Debt Payments
$800
Desired Loan Amount
$20,000
Annual Interest Rate
6%
Loan Term
36 months
Results
Debt-to-Income Ratio
28.17%
Monthly Loan Payment
$608.44
Total Monthly Debt
$1,408.44
Income After Debt
$3,591.56
Insights card shows DTI analysis with status, borrowing cost, and remaining capacity before hitting 36%.
Tips
Aim Below 36%
Most financial advisors and conventional lenders recommend keeping your total DTI ratio below 36%. At $5,000/month income, that means total debt payments should stay under $1,800/month.
Test Multiple Scenarios
Try different loan amounts and terms to find the combination that keeps your DTI comfortable. For example, extending the same $20,000 loan to 48 months at 6% drops the payment to $469.70 and DTI to 25.4%.
Check Remaining Capacity
The insights panel shows how much more monthly debt you can take on before hitting 36%. Use this to plan for future borrowing needs.
Lender Thresholds Vary
Conventional mortgages typically require DTI below 43%, while FHA loans may allow up to 50%. Credit cards and personal loans often have their own criteria.
Assessing Your Borrowing Power with the DTI Ratio
The debt-to-income (DTI) ratio is the primary metric lenders use to evaluate your ability to take on new debt.
This calculator computes your DTI by combining your existing debt payments with a projected new loan payment and comparing the total against your income.
For example, a $5,000/month earner with $800 in existing debt considering a $20,000 loan at 6% for 36 months would have a DTI of 28.17% — comfortably within the 36% guideline.
How the DTI Ratio Is Calculated
The calculator first determines your new monthly loan payment, then combines it with existing debt to compute the ratio:
Monthly Rate = Annual Interest Rate / 12
Monthly Loan Payment = (Loan Amount x Monthly Rate) / (1 - (1 + Monthly Rate)^-Term)
Total Monthly Debt = Existing Debt Payments + Monthly Loan Payment
DTI Ratio = (Total Monthly Debt / Monthly Income) x 100%
Worked Example: Evaluating a New Loan
A borrower earning $5,000/month with $800 in existing debt payments considers a $20,000 loan at 6% annual interest over 36 months.
- Monthly interest rate: 6% / 12 = 0.5% (0.005)
- Monthly loan payment: ($20,000 x 0.005) / (1 - (1.005)^-36) = $100 / 0.164356 = $608.44
- Total monthly debt: $800 + $608.44 = $1,408.44
- DTI ratio: ($1,408.44 / $5,000) x 100% = 28.17%
- Income after debt: $5,000 - $1,408.44 = $3,591.56
The 28.17% DTI is well within the 36% guideline, leaving $391.56/month of additional debt capacity before hitting that threshold.
Understanding DTI Thresholds
Lenders use DTI thresholds to assess risk.
Here is what different ranges typically mean:
- Below 36% — Strong position. Most lenders will view you favorably, and you qualify for competitive rates.
- 36-43% — Elevated. Some lenders may require compensating factors (high credit score, large down payment, significant savings).
- Above 43% — High risk. This exceeds the qualified mortgage threshold under CFPB guidelines. Most conventional lenders will decline or offer unfavorable terms.
For the worked example above, a DTI of 28.17% falls in the strong position category, with room to add up to $391.56/month in additional debt before reaching 36%.
Strategies to Improve Your DTI
If your DTI is higher than desired, consider these approaches:
- Pay down high-interest debt — Eliminating a $200/month credit card payment immediately improves your ratio
- Increase your income — A $500/month raise lowers your DTI from 28.2% to 25.6% using the example above
- Choose a smaller loan — Borrowing $15,000 instead of $20,000 at the same terms drops the payment to $456.33 and DTI to 25.1%
- Extend the term — A 48-month term on the same $20,000 loan drops the payment to $469.70 and DTI to 25.4%
Frequently Asked Questions
What is the loan affordability ratio?
The loan affordability ratio is the debt-to-income (DTI) ratio that includes a proposed new loan. It combines your existing monthly debt payments with the projected new loan payment and divides by your monthly income, showing what percentage of income would go to debt. For example, $1,408.44 total debt on $5,000 income = 28.17% DTI.
How is the new monthly loan payment calculated?
The monthly payment uses the standard amortization formula: Payment = (Loan Amount x Monthly Rate) / (1 - (1 + Monthly Rate)^-Term). For a $20,000 loan at 6% for 36 months: ($20,000 x 0.005) / (1 - 1.005^-36) = $608.44.
What DTI ratio do lenders prefer?
Most conventional lenders prefer a total DTI ratio below 36%, with the front-end ratio (housing costs only) below 28%. FHA loans may allow up to 43-50%. A lower ratio generally results in better interest rates and loan terms.
How can I improve my loan affordability ratio?
You can improve your DTI by paying down existing debts (reducing a $300 credit card payment has immediate impact), increasing your income, choosing a smaller loan amount, extending the loan term for lower monthly payments, or finding a lower interest rate.