Debt-to-Income Guide

Your debt-to-income ratio (DTI) is a crucial factor in mortgage approval that shows lenders how much of your income goes toward debt payments. This guide explains how DTI is calculated, what ratios lenders look for, and how to improve your DTI to qualify for better mortgage terms.

What is Debt-to-Income Ratio (DTI)?

Debt-to-income ratio (DTI) is the percentage of your monthly income that goes toward paying debts. It's a key factor lenders use to determine how much mortgage you can afford and whether you qualify for a loan.

Types of DTI Ratios

Front-End DTI

  • Only includes housing-related expenses
  • Mortgage principal and interest
  • Property taxes
  • Homeowners insurance
  • HOA fees (if applicable)
  • Mortgage insurance (if applicable)

Back-End DTI

  • Includes all monthly debt payments:
  • Housing expenses (front-end DTI)
  • Car loans
  • Student loans
  • Credit card minimum payments
  • Personal loans
  • Other debt obligations

How to Calculate Your DTI

  1. Add up all monthly debt payments
  2. Calculate your gross monthly income (before taxes)
  3. Divide total monthly debt by gross monthly income
  4. Multiply by 100 to get your DTI percentage

Example: If your monthly debts total $2,000 and your gross monthly income is $6,000, your DTI is 33% ($2,000 ÷ $6,000 = 0.33 × 100 = 33%)

Maximum DTI Ratios by Loan Type

  • Conventional Loans: Usually 43% max back-end DTI
  • FHA Loans: Up to 43% front-end, 50% back-end with compensating factors
  • VA Loans: Focus on residual income rather than strict DTI limits
  • Jumbo Loans: Often require lower DTI ratios (36-43%)

How to Improve Your DTI Ratio

Reduce Debt

  • Pay down credit card balances
  • Pay off or pay down car loans
  • Avoid taking on new debt
  • Consider debt consolidation

Increase Income

  • Ask for a raise
  • Take on additional work
  • Start a side business
  • Include rental income (if applicable)

Other Strategies

  • Add a co-borrower
  • Make a larger down payment
  • Look for a less expensive home
  • Pay off or settle collections

Compensating Factors

Factors that may help you qualify with a higher DTI:

  • Excellent credit score
  • Substantial down payment
  • Significant cash reserves
  • Stable employment history
  • Low payment-to-rent ratio
  • High residual income

Common Questions

What income counts toward DTI?

Regular salary, commissions, bonuses, overtime, self-employment income, rental income, and other reliable sources of income can be included if properly documented.

Which debts are included in DTI?

Monthly payments on any debt that appears on your credit report, plus other obligations like alimony or child support. Utilities and insurance (except homeowners) are typically not included.

How often should I check my DTI?

Calculate your DTI at least quarterly, or whenever your income or debt obligations change significantly.

Ready to Explore Your Mortgage Options?

Connect with our mortgage experts to understand your options and find the best solution for your situation.

Get Rate Quotes