Your debt-to-income ratio (DTI) measures how much of your monthly income goes toward debt payments. It's one of the most important factors lenders consider when deciding whether you can afford a mortgage. Too high a DTI signals that you might struggle to make payments if income dips or expenses rise. Understanding and managing your DTI is essential for mortgage approval.
How DTI Is Calculated
Lenders look at two DTI ratios. Front-end DTI (or housing ratio) includes only housing costs: mortgage principal and interest, property taxes, homeowner's insurance, HOA fees, and any PMI. Back-end DTI (or total debt ratio) includes housing costs plus all other monthly debt payments: car loans, student loans, credit card minimums, personal loans, child support, and alimony.
The calculation uses your gross monthly income—before taxes and deductions. If you earn $80,000 annually, your gross monthly income is about $6,667. If your proposed housing payment is $1,800 and your other debts total $400 monthly, your front-end DTI is 27% and back-end DTI is 33%.
DTI Requirements by Loan Type
Conventional loans generally want back-end DTI at or below 43%, though some lenders go higher with compensating factors (excellent credit, large reserves, significant down payment). The ideal front-end ratio is 28% or lower.
FHA loans allow DTI up to 43% through their automated underwriting system, or up to 50% with compensating factors. FHA is more flexible on DTI because the government insurance protects lenders.
VA loans focus on residual income—money left over after housing costs and debts—rather than strict DTI ratios. However, most lenders still prefer DTI around 41% or lower for VA loans.
Strategies to Lower Your DTI
Pay down debt before applying for a mortgage. Eliminating a $300 car payment drops your DTI by several percentage points. Focus on loans with the fewest remaining payments, giving you the fastest reduction in monthly obligations.
Avoid new debt in the months before and during your mortgage application. That new car or furniture purchase increases your DTI and can push you over the threshold for approval.
Increase your income—if possible. A raise, promotion, or documented bonus can improve your DTI. Note that lenders typically need to see income for two years before counting it, so a brand-new job doesn't immediately help.
Buy less house. If your ideal purchase pushes DTI too high, consider a less expensive home. This might mean a different neighborhood, smaller size, or waiting until debts are paid down.
Use our DTI calculator to see where you stand before applying.