What Is the Debt-to-Income (DTI) Ratio for a Mortgage?

Written by Katy ByromOctober 12th, 20228 minute read

DTI Calculator | What is DTI? | How to calculate DTI | DTI requirements for a mortgage | How to improve your DTI | FAQs

Your debt-to-income (DTI) ratio is the percentage of your gross monthly income that goes toward recurring debts such as rents, mortgages, car payments, student loans, and credit card bills.[1] Lenders factor in DTI when determining your borrowing power.

Before a lender will approve you for a specific mortgage amount, they'll want to be sure you can afford the monthly payment. If too much of your income is already allocated toward existing financial obligations, lenders may question your ability to manage more debt.

DTI requirements vary somewhat by lender and loan type, but as a general rule, you'll want to keep your total recurring debt payments to less than 36% of your income — with no more than about 28% going toward mortgage costs.

The lower your debts in relation to your income, the easier time you'll have getting a home loan.

You can use our debt-to-income ratio calculator to see how your DTI matches up to the 28/36% rule.

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Debt-to-income ratio calculator

To calculate your DTI ratio, enter any sources of income along with your recurring debt payments.

What is your debt-to-income ratio?

Your debt-to-income (DTI) ratio measures the amount of debt you owe month-to-month relative to your gross income — that is, what you make before taxes and other payroll deductions are taken out.

While DTI doesn't affect your credit score like credit utilization does, it's a key factor in lending decisions. The lower it is, the less risky you appear as a borrower.

Your DTI ratio is typically assessed across two calculations:

  • Front-end ratio: Your future monthly housing payments, based on the tentative loan amount. The figure includes your mortgage principal and interest, property taxes, private mortgage insurance (if applicable), homeowners insurance, and HOA fees.
  • Back-end ratio: The total amount of recurring monthly debt after you add in the tentative mortgage. So that's your future loan payments plus any recurring debt you had coming in (credit card bills, auto loans, student debt, child support, etc.)

While your back-end ratio (or total DTI) carries more weight on mortgage applications, lenders also want to see how much of your income would be absorbed by mortgage payments.

If your monthly payments would push you beyond a healthy level of debt relative to your income, an underwriter might be reluctant to sign off on a mortgage.

How to calculate your debt-to-income (DTI) ratio

To calculate your debt-to-income ratio, add up all of your monthly debt payments from the following sources:

  • Rents
  • Mortgages
  • Credit cards
  • Car loans
  • School loans
  • Personal loans
  • Other financial obligations such as child support or alimony

» LEARN: Are you borrowing more than you should? Our credit utilization calculator will tell you!

After tallying your recurring monthly debts, divide the total by your monthly gross income (before taxes) from any/all verifiable sources, including:

  • Wages, tips, and salary
  • Investment income
  • Interest on savings accounts
  • Other sources of income, such as pensions, social security, or disability payments

How lenders look at DTI

If you want to get a sense of how lenders look at DTI, you can break it out into a front-end and back-end ratio.

The front-end ratio only takes into account housing-related expenses, such as your monthly mortgage principal and interest, real estate taxes, homeowner's insurance, and any other required add-ons (i.e. flood insurance, private mortgage insurance, and HOA fees).

The back-end ratio adds your remaining debts, such as minimum credit card and loan payments, on top of your estimated mortgage.

Here's an example DTI ratio calculation based on $6,000 of gross monthly income:

Example debt-to-income ratio calculation


Front-end debts
Back-end debts
Proposed mortgage payment
$1,200
$1200
Car payment
N/A
$250
Minimum credit card payments
N/A
$200
Student loans
N/A
$300
Personal loans
N/A
$50
Total debts
$1,200
$2,000
Debt-to-income calculation
$1,200 / $6,000
$2,000 / $6,000
Debt-to-income ratio
20.00%
33.33%

What is the debt-to-income ratio to qualify for a mortgage?

Most mortgage lenders look for a DTI ratio of no more than 36%, per the guidelines set by the Federal National Mortgage Association (i.e., Fannie Mae) and Federal Home Loan Mortgage Corporation (i.e., Freddie Mac).

However, lenders may allow a DTI ratio as high as 45% or more if you meet additional credit score, savings, and down payment requirements.

Each loan type has slightly different DTI ratio parameters

Conventional mortgages are private loans that conform to guidelines set by the Fannie Mae or Freddie Mac. These include both maximum loan amounts and borrower eligibility requirements, such as minimum down payment, credit score, and DTI qualifications.

Loans backed by the federal government — including FHA, VA, and USDA loans — tend to have slightly softer lending requirements.

Debt-to-income ratio for a conventional loan

For conventional loans, Fannie Mae and Freddie Mac set the maximum backend DTI at 45%, though below 36% is preferable. At the low end of the DTI range, you'll need a minimum credit score of 620, while a higher DTI ratio will require a better credit score and more cash reserves.

In rare cases, you may qualify for a loan with a DTI as high as 50% based on strong compensating factors, such as:

  • An exceptional credit score (e.g. 720 or above)
  • At least 6–12 months of cash reserves
  • A down payment of 25% or more
  • A projected increase in income from a recent degree completion, pension plan, etc.

» MORE: Need help paying for your home? Check out these grants for first-time home buyers

Debt-to-income ratio for an FHA loan

With an FHA loan, the maximum backend DTI lenders will look for is 43%. Ideally, your mortgage payment (front-end DTI) should be no greater than 31% of your gross monthly income.

However, with additional cash reserves or residual income (such as pending social security, disability, or child support payments), the FHA may permit a DTI as high as 50%.

» LEARN: Read more about the FHA debt to income requirements

Debt-to-income ratio for a VA loan

The "ideal" backend debt-to-income ratio for a VA loan — including the proposed mortgage payment and monthly debts — is anything under 41%. However, the VA offers this threshold as more of a guideline than a hard-and-fast rule.

When evaluating your mortgage application, lenders will also look at your residual income — that is, the amount of money you have left over after paying your monthly expenses, including some that are not factored into your DTI.

Additional expenses accounted for in your residual income calculation include:

  • Income and social security taxes
  • Estimated maintenance and utility costs
  • Childcare costs

Essentially, the VA wants to be sure that you'll still have enough money left over to live on after covering your mortgage and all other existing financial obligations.

» MORE: Check out our VA residual income calculator to see if you meet requirements

Debt-to-income ratio for a USDA loan

To qualify for a USDA loan, your backend DTI should be 41% or less, with no more than 29% of your income going toward your future mortgage.

You'll also need to meet some unique eligibility requirements. USDA loans are only available for buying or refinancing a home in an eligible rural area. As a borrower, your income cannot exceed more than 115% of the median household income for the area where you're buying.

» MORE: Get the full breakdown on USDA loan requirements

While mortgage guarantors like the VA and Fannie Mae set minimum standards for loans they back, individual lenders may have stricter requirements. You can ask your lender about their specific lending criteria before you apply.

How to improve your debt-to-income ratio

If your DTI is on the high end, you may need to bring it down to qualify for a mortgage. There are a few different approaches you can take.

1. Reduce your monthly debts

The fastest way to lower your DTI is to pay down your existing loan and credit card balances.

One strategy is to pay off your smallest loans first, which will free up cash to put toward larger debts like car payments and student loans.

Another option for reducing your credit balances is to refinance your high interest and high balance loans. Rather than let a high interest rate inflate what you owe, try shopping around for a lower rate.

2. Increase your income

While easier said than done, some people up their monthly earnings by taking on a weekend job or side hustle, such as online tutoring or food delivery. Others level up their skills to take on a higher paying job.

Either way, increasing your monthly income will lower your DTI, even without paying down your debt.

3. Add another borrower to your loan

If you're buying a house with a spouse or partner, combining your incomes on a loan application — especially if their DTI is lower than yours — could instantly boost the amount that you're able to borrow.

However, if your partner has major credit issues or a spotty employment history, it could actually make it harder to get approved at a decent interest rate. In that case, you could ask a family member or friend to co-sign your mortgage application.

In a cosigning arrangement, the other party will essentially guarantee to step in and take over your payments if you default on your loan. While it hopefully won't come to that, having someone with strong finances on your credit application will make you a more appealing applicant to prospective lenders.

Bottom line

If you're considering buying a home, evaluating your DTI will give you a good sense of your theoretical borrowing power.

If your DTI is higher than the recommended ratio for the loan you're interested in, taking steps now to lower your debts or boost your income will pay dividends when you apply for a mortgage in the future.

If you’re serious about buying, connecting with an experienced local realtor (or even a few) is a good first step! A good agent can help you determine your budget and target neighborhoods, refer you to trusted local lenders so you can get pre-approved, and start setting up house showings.

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Debt-to-income ratio FAQs

Yes! Your debt-to–income ratio measures the portion of your monthly income that goes toward recurring debts, such as credit card bills, auto loans, student loans, rents, mortgage payments, and child support. However, it doesn't factor in day-to-day expenses like utilities, transportation, and groceries.

When it comes to lowering your debt-to-income ratio, you generally have two options: Increase your monthly income or lower your monthly credit payments.

Your debt-to-income ratio determines the maximum amount of money you can borrow when applying for a mortgage. When your debt-to-income ratio exceeds a certain threshold — usually 36–45%, depending on your credit score, down payment, and cash reserves — you may have trouble qualifying for a loan.

As a general rule, your debt-to-income ratio should remain below 36%, with no more than 28% of your income going toward mortgage-related expenses. However, requirements may vary slightly depending on your lender and the type of loan you're applying for. For example, the VA and FHA loans allow for DTIs of up to 41%.

Your debt-to-income (DTI) ratio takes into account both your future mortgage payment and any recurring debts, such as rent, credit cards bills, outstanding loans, and child support. It divides the total of these debts by your gross monthly income from wages, tips, investments, pensions, and more.

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ARTICLE SOURCES
[1]

Consumer Finance Protection Bureau. "What is a debt-to-income ratio?." Accessed August 1, 2022. Updated June 8, 2022.