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Debt-to-Income Ratio (DTI)
DTI is the percentage of your gross monthly income that goes toward paying debts. Lenders use DTI to determine how much mortgage you can afford.
How It Works
Debt-to-income ratio (DTI) is one of the most important numbers in mortgage qualification. It measures how much of your monthly income goes toward debt payments. There are two types: front-end DTI (housing costs only) and back-end DTI (all debts including housing). Most conventional lenders want your back-end DTI below 43%, though some allow up to 50% with strong compensating factors. FHA loans allow up to 43-50% DTI, and VA loans have no hard DTI limit (though 41% is a guideline). Your DTI is calculated by dividing your total monthly debt payments by your gross monthly income. For example, if you earn $6,000/month and have $2,400 in total monthly debts (including your proposed mortgage payment), your DTI is 40%.
Key Facts
Front-end DTI: housing costs ÷ gross monthly income (ideal: under 28%)
Back-end DTI: all debts ÷ gross monthly income (ideal: under 36%)
Conventional loans typically require back-end DTI under 43%
FHA allows up to 43-50% DTI
VA loans have no hard DTI limit (41% guideline)
Lower DTI = better loan terms and easier approval
Example
You earn $7,000/month gross. Your debts: proposed mortgage $1,800, car payment $400, student loans $300, credit card minimums $100. Total debts = $2,600. Your DTI = $2,600 ÷ $7,000 = 37.1%. This is within conventional loan limits.
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Frequently Asked Questions
A DTI of 36% or lower is considered good. Most conventional lenders accept up to 43%. FHA loans may allow up to 50% with compensating factors like high credit scores or significant cash reserves.
No. DTI includes your proposed mortgage payment (or current mortgage if you own), not rent. When applying for a mortgage, lenders replace your rent with the projected mortgage payment in the DTI calculation.
Pay off debts (especially high-payment debts like car loans), increase your income, choose a less expensive home, or make a larger down payment to reduce your mortgage payment.