The Debt-to-Income ratio (also known as housing expense ratio or housing expense-to-income ratio) is a method used by mortgage lenders to determine the maximum mortgage payment buyers can afford. It is the percentage of gross monthly income devoted to housing expenses. There is a Front End Ratio and a Back End Ratio.
The Front End Ratio is calculated by dividing your new total monthly rent by your gross income per month. Typically this ratio should not exceed 28%. The Back End Ratio is the combination of the monthly rent payment and all of your monthly debts (i.e. credit card payments, school loans, car payments, alimony, child support, etc.) divided by your gross income per month. Acceptable Back End Ratios should not exceed 36%.
This calculator will estimate your debt-to-income ratio. While individual circumstances will vary, a high debt-to-income ratio can be a major indication of a burdensome debt rate. Excessive debt can lead to very serious financial difficulties that can take years to overcome. If your ratio is too high (meaning you spend more than you make), you may want to consider creating a budget to adjust your expenses and to reduce your ratio.
Debt Ratio Barometer