When you apply for a mortgage, lenders look at two key numbers: your credit score and your debt-to-income ratio (DTI). While most people know their credit score, far fewer understand DTI or realize how much it affects their ability to qualify for a loan.
What Is Debt-to-Income Ratio?
Your DTI ratio is the percentage of your gross monthly income that goes toward debt payments. Lenders use it to assess whether you can comfortably handle additional debt in the form of a mortgage payment.
There are two types of DTI:
- Front-end DTI: Only includes housing costs (mortgage payment, property taxes, insurance, and HOA fees). Most lenders want this below 28% to 31%.
- Back-end DTI: Includes all monthly debt payments (housing costs plus car loans, student loans, credit card minimums, personal loans, child support). This is the number lenders focus on most.
How to Calculate Your DTI
The formula is straightforward:
DTI = Total Monthly Debt Payments / Gross Monthly Income x 100
For example, if you earn $7,000/month gross and your debts total $2,450/month (including the proposed mortgage payment), your DTI is 35%.
Want a quick answer? Use our DTI calculator to compute your ratio in seconds.
What Counts as Debt?
Lenders include these monthly obligations:
- Proposed mortgage payment (principal, interest, taxes, insurance)
- Car loan or lease payments
- Student loan payments (including income-driven repayment amounts)
- Credit card minimum payments
- Personal loan payments
- Child support or alimony
- Any other installment loans
Lenders do not count utilities, groceries, cell phone bills, subscriptions, car insurance, or health insurance.
DTI Limits by Loan Type
- Conventional loans: Maximum back-end DTI of 45%, with some exceptions up to 50% for borrowers with strong compensating factors (high credit score, large reserves)
- FHA loans: Maximum back-end DTI of 43% standard, up to 57% with compensating factors
- VA loans: No strict DTI cap, but 41% is the guideline; higher ratios require additional justification
- USDA loans: Maximum back-end DTI of 41%
7 Ways to Lower Your DTI
1. Pay Off Small Debts
Eliminating a $200/month car payment or a $150/month credit card minimum instantly reduces your DTI. Focus on debts with the smallest balances first for quick wins.
2. Avoid Taking on New Debt
Do not finance a new car, open credit cards, or take personal loans in the months before applying for a mortgage. Every new payment increases your DTI.
3. Increase Your Income
A raise, bonus, side hustle income, or switching to a higher-paying job all reduce your DTI. Lenders will want to see consistent income, so establish any new income source at least a few months before applying.
4. Pay Down Credit Card Balances
Even if you cannot pay off cards completely, reducing balances lowers the minimum payments that count toward your DTI.
5. Refinance Existing Loans
If you can refinance a car loan or student loan to a longer term with a lower monthly payment, that reduces your DTI (though it may cost more in total interest).
6. Add a Co-Borrower
Adding a spouse or partner with income to the application increases the income side of the equation, lowering the ratio.
7. Choose a Less Expensive Home
A lower purchase price means a smaller mortgage payment, which directly reduces your front-end and back-end DTI. Use our affordability calculator to see what price range keeps you in the comfort zone.
The Bottom Line
Your DTI is not just a gatekeeper for loan approval. It is a reality check on how much home you can comfortably afford. Take the time to calculate yours honestly, work on lowering it if needed, and enter the mortgage process from a position of strength.