The Debt-to-Income (DTI) Ratio is the percentage of your gross monthly income that goes to paying monthly debts—used by lenders to decide how much mortgage you can safely afford.
DTI helps lenders judge repayment ability: a lower DTI improves chances for mortgage approval, better interest rates, and higher loan amounts; refinancers use it to qualify you for new terms; investors use DTI along with property cash flow to size portfolios and financing.
1) Add all monthly debt payments that lenders count. 2) Use your gross (pre-tax) monthly income. 3) Divide total monthly debts by gross monthly income and multiply by 100 to get a percentage.
- Example: Monthly debts $3,000 ÷ Gross income $7,000 = 0.4286 → DTI = 42.9%.
Front-end DTI (housing ratio) includes monthly housing costs: principal & interest on the mortgage, property taxes, homeowners insurance, and sometimes HOA/condo fees or mortgage insurance.
Back-end DTI includes housing costs plus all recurring monthly debt obligations: credit card minimums, auto and student loan payments, alimony/child support (when applicable), and other installment loans or judgments.
Most lenders check both: the front-end gauges housing affordability; the back-end assesses overall leverage. Conventional lenders often emphasize both with targets (e.g., 28/36), while government programs (FHA, VA, USDA) focus more on back-end flexibility and compensating factors.
Lenders generally include mortgage payments (or rent if you don’t have one), auto loans, minimum credit card payments, student loan payments, and other installment loans.
Legally required payments like alimony and child support are usually counted. Collections and judgments listed on a credit report may be counted if they show required monthly payments or are expected to continue.
Lenders use the required monthly payment (minimum or contractual installment), not the full outstanding balance, to compute DTI. For credit cards they typically use the greater of the actual payment or a calculated percentage (often 1–3% of the balance) depending on the lender.
Gross salary and hourly wages count. Overtime, bonuses, and commission income may count if they are consistent and documented—lenders often average 2 years of history.
Self-employed borrowers usually provide 2 years of tax returns; lenders use net income after allowable deductions, sometimes averaging profit over 24 months. Rental income can be added, but lenders often use a percentage (e.g., 75%) of documented rental income and may subtract expenses.
Co-borrower or spouse income can be included with documentation. Non-taxable income (VA disability, some child support) may be allowable but must be verified and often adjusted (grossed-up) per lender rules. Certain one-time or irregular income is typically excluded unless it’s likely to continue and can be documented.
Conventional lenders commonly prefer total DTI below ~36% with front-end near 28%, but qualified mortgages often allow up to 43% and some lenders permit 45%+ with strong credit, higher down payment, or compensating factors.
FHA guidelines are more flexible: back-end DTI can be 43% or higher if there are compensating factors (reserves, high credit score, low housing payment relative to income). Underwriters often allow DTIs into the high 40s for strong borrowers.
VA and USDA programs can be flexible on DTI if other measures look strong (residual income for VA, strong credit, reserves). VA lenders may approve higher DTIs when the veteran’s residual income meets program standards.
Investment property loans usually have stricter DTI and reserve requirements; lenders also require debt-service coverage ratios (DSCR) and may rely less on rental income from the subject property unless proven with leases and tax returns.
For standard amortizing payments, lenders use the actual monthly payment. For IDR plans with low or $0 monthly obligations, some lenders use a calculated payment (e.g., 1%–2% of the loan balance) or an amount derived from the credit report unless the borrower can document the IDR payment and its expected continuation.
Recent job changes can complicate income qualification—lenders typically want a stable 2-year history or strong evidence a raise/role change is permanent. Gig and self-employed income usually require 2 years of tax returns and may be averaged; one-year strong income without history may be excluded or discounted.
Divorce can create new debt obligations. Court-ordered alimony/child support is counted as debt; incoming alimony/child support can be counted as income only if consistent and documented per lender rules.
Adding a co-borrower with income can lower combined DTI and improve approval odds. Co-signers who won’t occupy the property are treated differently by programs—some lenders include their income, others require occupancy or additional documentation.
Typical income docs: recent pay stubs (30–60 days), last 2 years of W-2s, and tax returns (1040s). Self-employed borrowers provide profit & loss statements and business tax returns; lenders may request 2 years of returns to average income.
Lenders pull credit reports to verify open accounts, monthly payment history, loan balances, judgments, and collections. The credit file often supplies the minimum payments used in DTI calculations.
Rental income is verified with leases, 2 years of Schedule E tax forms, or bank deposits. Lenders also look at asset reserves (bank statements) to approve borrowers with higher DTIs or to meet program reserve requirements.
DTI is a primary underwriting gate: even strong credit and low LTV can’t always overcome a high DTI. Underwriters balance DTI with credit score, loan-to-value (LTV), assets, and employment stability.
Compensating factors include significant cash reserves, large down payment, high credit score, low housing payment relative to income, documented additional income, and strong residual income (VA). These can allow exceptions to standard DTI caps.
Higher DTI can reduce the maximum loan amount you qualify for, push you into a different loan program, or increase interest rates and mortgage insurance requirements. Lowering DTI can expand options and reduce borrowing costs.
Short-term moves include paying down revolving balances, lowering credit card utilization, disputing inaccurate debts on your credit report, stopping new credit applications, and removing authorized users or tradelines that increase reported debts.
Longer strategies: increase income through raises or side work, refinance high-interest debts into lower monthly payments, extend loan terms to reduce monthly payments (careful of total interest), and delay large purchases that add monthly obligations until after loan closing.
Consider a qualified co-borrower when they have strong credit and verifiable income. Paying off installment debts with high monthly payments (auto loan, personal loan) can meaningfully reduce DTI; compare the cost versus the benefit to your mortgage approval and rate.
Include inputs: gross monthly income, pay frequency, housing costs (PITI + HOA), auto loan payment, student loan payment, credit card minimums, other installment payments, alimony/child support, and any rental income (with lender adjustment). Output: front-end %, back-end %, and notes on likely program fit.
Online calculators are great for quick estimates. Speak to a loan officer for program-specific rules, documentation guidance, and when you have irregular income, IDR student loans, or need compensating-factor advice—underwriting judgment matters.
Scenario: Buyer’s gross monthly income $6,000. Debts: proposed mortgage PITI $1,750, auto payment $300, student loan payment $200, credit card minimums $150. Total monthly debts = $2,400.
Step 1: Front-end DTI = 1,750 ÷ 6,000 = 29.2%. Step 2: Back-end DTI = 2,400 ÷ 6,000 = 40.0%.
Outcome: Back-end 40% is within many FHA and some conventional programs with compensating factors, but may be on the edge for strict conventional guidelines. Recommended steps: pay down $250–$400 of revolving credit to push back-end below ~36%, produce reserves (2–3 months PITI), or add a co-borrower to lower DTI and improve pricing.
Lenders count the full housing payment (PITI): principal & interest plus property taxes and homeowners insurance. Mortgage insurance and HOA fees are also typically included.
For IDR plans, lenders may use the actual documented payment if verified, or they might use a calculated payment based on loan balance (often 1%–2% of balance) depending on the lender and program.
A cosigner or co-borrower who contributes income can lower combined DTI and improve approval odds, but the lender will also factor the cosigner’s debts and credit—structure carefully and document intent and occupancy requirements.
DTI affects both approval and pricing. Higher DTI can still lead to approval but often at higher interest rates or with stricter mortgage insurance and reserve requirements because the borrower represents greater risk.
Get prequalified early to estimate affordability; get preapproved when you’re serious—preapproval requires documentation and gives a stronger signal to sellers about your ability to close.
Ask: Which debts do you count and how? How do you treat IDR student loans? What income documentation is needed for my employment type? Are compensating factors considered? What DTI thresholds apply to the specific loan I want?
Try a DTI worksheet with fields for every monthly liability and income stream, use an online DTI/mortgage calculator to model scenarios, and download a mortgage document checklist (pay stubs, tax returns, bank statements, credit reports) to prepare for loan conversations.
