What Is Debt-to-Income Ratio (DTI)?
Your Debt-to-Income Ratio (DTI) measures how much of your monthly income goes toward debt payments. Lenders use DTI to assess your ability to handle a mortgage.
How to Calculate DTI
DTI is calculated using this formula:
DTI = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100
Example:
- Monthly debt payments: $1,500
- Gross monthly income: $5,000
- DTI: ($1,500 ÷ $5,000) × 100 = 30%
Front-End vs. Back-End DTI
Lenders consider two types of DTI:
| Type | What It Includes | Ideal Ratio |
|---|---|---|
| Front-End DTI | Housing costs (mortgage, property taxes, insurance) | 28% or lower |
| Back-End DTI | All debts (housing + credit cards, car loans, student loans, etc.) | 36% or lower |
What DTI Do Lenders Require?
Here’s a breakdown of typical DTI limits by loan type:
| Loan Type | Maximum DTI Allowed |
|---|---|
| Conventional Loan | 43% (may go higher with strong credit) |
| FHA Loan | 50% (with compensating factors) |
| VA Loan | 41% (exceptions possible) |
| USDA Loan | 41% |
How to Improve Your DTI
To qualify for a mortgage, try these strategies to lower your DTI:
- ✅ Pay off small debts: Reducing credit card balances can lower your DTI quickly.
- ✅ Avoid new debt: Hold off on car loans or large credit purchases before applying.
- ✅ Increase your income: A salary raise or side income improves your ratio.
- ✅ Refinance existing loans: Lowering payments on existing debts can help.
Why DTI Matters for Mortgage Approval
A lower DTI increases your chances of getting approved for a mortgage and securing a better interest rate.
“A lower DTI shows lenders you can handle mortgage payments comfortably.”
— Sarah Thompson, Mortgage Expert
Frequently Asked Questions
Can I get a mortgage with a high DTI?
Some loans allow higher DTIs (up to 50%), but lenders may require compensating factors like a higher credit score or larger down payment.
Does paying off credit cards help DTI?
Yes! Lowering revolving debt can improve your back-end DTI significantly.
How can I calculate my own DTI?
Use our Home Affordability Calculator to check your DTI and see what you can afford.