Debt-to-Income Ratio (DTI)
Debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes toward debt payments, including your proposed mortgage. Lenders use DTI to measure your ability to manage monthly payments. Most conventional loans require a DTI of 45% or below; FHA loans may allow up to 57% with compensating factors.
DTI is calculated in two ways. Front-end DTI (also called housing ratio) is just your proposed housing payment (principal, interest, taxes, insurance, and HOA dues) divided by gross income. Back-end DTI includes all monthly debt obligations: housing payment plus car loans, student loans, credit card minimums, child support, etc. Lenders focus primarily on back-end DTI.
Example: If your gross monthly income is $8,000 and your total monthly debts (including new mortgage) are $3,200, your DTI is 40% — generally acceptable for most loan programs. If your DTI were $4,000 on $8,000 income (50%), you'd have difficulty qualifying for a conventional loan without other strong compensating factors like excellent credit or large reserves.
To lower your DTI before applying, pay down revolving debt (credit cards make the biggest difference), pay off small installment loans, or avoid taking on new debt. Increasing income (adding a co-borrower, documenting side income) is the other lever. Note that student loans in deferment still count in DTI calculations — lenders use 1% of the balance as the payment if no payment is due.
Key Takeaway
Debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes toward debt payments, including your proposed mortgage. Lenders use DTI to measure your ability to manage monthly payments. Most conventional loans require a DTI of 45% or below; FHA loans may allow up to 57% with compensating factors.
Related Terms
Frequently Asked Questions
Below 36% is considered strong. Most conventional loans accept up to 45%. FHA loans may go to 57% with compensating factors like high credit score or large cash reserves.
Yes. Lenders include student loan payments in your DTI. If loans are deferred, many lenders still count 0.5–1% of the balance as a monthly payment.
Possibly, with compensating factors like a large down payment, high credit score, or significant cash reserves. FHA and VA loans are more flexible on DTI than conventional loans.
Compare Mortgage Rates Today
Now that you know what debt-to-income ratio (dti) means, see how it affects your bottom line.
See Rates →