Debt-to-income ratio (DTI) explained: how it's calculated and what mortgage lenders allow
The short answer
Debt-to-income ratio (DTI) is your total monthly debt payments divided by your gross monthly income, expressed as a percentage. Lenders use it to judge whether you can afford a mortgage. Many programs cap DTI around 43% to 50%, and a common comfort level is 36% or lower. For example, $3,370 in monthly debts, including the new housing payment, on $9,000 of gross monthly income is a DTI of about 37%.
Key numbers
- Formula
- monthly debts ÷ gross monthly income
- Comfortable range
- 36% or lower
- Commonly allowed
- about 43% to 50%, by program
- Front-end ratio
- housing costs only
What is debt-to-income ratio?
Debt-to-income ratio is a percentage that shows how much of your gross (pre-tax) monthly income goes to debt payments. It is one of the two or three most important numbers in a mortgage application, alongside your credit score and down payment. A lower DTI means more of your income is free to cover a new payment, which lenders see as lower risk.
DTI = total monthly debt payments ÷ gross monthly income × 100
Front-end vs. back-end DTI
- Front-end ratio (housing ratio): only your housing costs (the new mortgage payment including principal, interest, taxes, insurance, mortgage insurance, and HOA dues) divided by gross income.
- Back-end ratio (total DTI): housing costs plus all other monthly debt payments, divided by gross income. This is the number most lenders focus on.
The old 28/36 guideline refers to a 28% front-end and a 36% back-end ratio.
Which debts count?
| Usually counted | Usually not counted |
|---|---|
| Proposed mortgage payment (principal, interest, taxes, insurance, mortgage insurance) | Utilities (electric, water, internet) |
| HOA or condo dues | Groceries, gas, and everyday spending |
| Auto loans and leases | Health, auto, and life insurance premiums |
| Student loans (the payment, or a standard percentage of the balance if the payment is $0 or deferred) | Cell phone and subscriptions |
| Credit card minimum payments | Childcare costs |
| Personal loans and installment loans | Payroll taxes and retirement contributions |
| Child support and alimony | Current rent (it is replaced by the new payment) |
| Other mortgages or home equity payments |
Installment loans with fewer than about 10 months remaining may be excluded by some programs. Ask the lender how it treats specific debts.
What income counts?
- Salary and hourly wages, before taxes.
- Bonuses, overtime, and commissions, usually if you have a two-year history and they are likely to continue, typically averaged.
- Self-employment income, based on net income after business expenses, usually averaged over two years of tax returns.
- Social Security, pension, disability, and retirement distributions, with documentation that they will continue.
- Rental income, often counted at a percentage of gross rent (commonly 75%) after expenses, with a lease or history.
- Alimony and child support received, if it will continue for at least three years and is documented.
Worked example
Gross income: $9,000 a month. Proposed housing payment (principal, interest, taxes, insurance, mortgage insurance): $2,520. Other debts: car loan $450, student loan $300, credit card minimums $100.
- Front-end DTI = $2,520 ÷ $9,000 = 28.0%
- Total debts = $2,520 + $450 + $300 + $100 = $3,370
- Back-end DTI = $3,370 ÷ $9,000 = 37.4%
At a 43% cap, this buyer could carry $3,870 of total debt. With $850 already committed to other debts, the maximum housing payment is $3,020. If the car loan and credit cards were paid off, leaving only the $300 student loan, the maximum housing payment would rise to $3,570 (43% × $9,000 − $300), about $550 more each month. Paying off small debts can increase your buying power faster than saving more for a down payment.
DTI limits by loan type
| Program | Typical back-end DTI | Notes |
|---|---|---|
| Conventional | Up to 45% manually; up to 50% with automated approval | Strong credit, reserves, and a larger down payment help |
| FHA | 43% standard; higher with automated approval and compensating factors | Some approvals go well above 50% |
| VA | 41% guideline | Also uses a residual income test; higher DTIs can be approved |
| USDA | Around 41%, with a lower housing ratio guideline | Exceptions with strong credit |
| Jumbo | Often 43% or lower | Lender-specific |
These are typical guidelines. Each lender may add its own overlays, and automated underwriting systems weigh DTI along with your credit score, down payment, and reserves. A 45% DTI with a 780 credit score and 20% down is a very different file from a 45% DTI with a 640 score and 3% down.
How can you lower your DTI?
- Pay off small, high-payment debts first. Eliminating a $350 car payment lowers DTI more than a $50,000 credit balance with a $150 minimum.
- Do not take on new debt before applying or before closing.
- Increase income. Add a co-borrower, document overtime or a second job, or wait until a raise shows in pay stubs.
- Lower the housing payment. A larger down payment, a lower price, or a rate buydown can reduce the new payment.
- Refinance or consolidate high-payment debt into a lower monthly payment, if the total cost makes sense.
- Ask about excluded debts, such as installment loans with under 10 months left.
DTI vs. credit score: what's the difference?
Your credit score summarizes how you have handled debt in the past. DTI measures your ability to take on more. You can have an excellent credit score and a high DTI, or a lower score and a low DTI. Lenders need both to be acceptable. Credit score requirements by loan type.
DTI for other loans
Lenders also use DTI for refinances, HELOCs, and home equity loans, with similar limits. Home equity qualification. A cash-out refinance may be tighter, since the new payment adds to your debts.
Three more worked examples
Income $7,000 a month. Student loan $600, car loan $350, card minimums $75, total $1,025. Proposed housing payment $2,000. Front-end DTI = 28.6%. Back-end DTI = ($2,000 + $1,025) ÷ $7,000 = 43.2%. This borrower is right at a common limit and may need strong credit or reserves for approval, or should look at paying off the car loan.
Borrower 1 earns $6,000 a month with $800 of debts; borrower 2 earns $4,000 with $200 of debts. Proposed housing payment is $2,700. Alone, borrower 1's DTI would be ($2,700 + $800) ÷ $6,000 = 58.3%, too high. Together, DTI = ($2,700 + $1,000) ÷ $10,000 = 37%, a comfortable number. Remember that both incomes and both credit profiles are considered.
Net business income per tax returns was $72,000 last year and $60,000 the year before. Lenders typically average two years, giving $66,000, or $5,500 a month. With a proposed housing payment of $1,800 and $400 in other debts, DTI = $2,200 ÷ $5,500 = 40%. If income is declining, some lenders use the lower year.
Common DTI mistakes
- Counting net income instead of gross.
- Forgetting taxes, insurance, mortgage insurance, and HOA dues in the housing payment.
- Ignoring small debts that lenders will count, such as a retail card minimum or a buy-now-pay-later plan on your report.
- Assuming that deferred student loans do not count.
- Taking on a car loan or furniture financing right before closing.
Frequently asked questions
What is a good debt-to-income ratio for a mortgage?
36% or lower is comfortable. Many lenders approve up to about 43% to 50%, depending on the loan program and the rest of your file.
Do rent and utilities count in DTI?
No. Utilities are not counted, and current rent is replaced by the proposed mortgage payment.
Is DTI calculated on gross or net income?
Gross income, meaning before taxes and deductions.
How do student loans count if they're deferred?
Lenders typically use a standard percentage of the balance, such as 0.5% to 1% a month, or the documented payment, depending on the loan program.
Does DTI affect my interest rate?
It can. Higher DTIs make some loans ineligible for the lowest pricing, and lenders may charge more for higher-risk files.