What Is DTI?
DTI stands for Debt-to-Income ratio, and it plays a major role in determining your mortgage eligibility. In simple terms, your DTI ratio is a comparison between how much money you owe each month and how much you earn.
Lenders use this ratio to assess your ability to manage monthly payments and repay debts. The lower your DTI, the less risky you appear to lenders.
Types of DTI Ratios
There are two main types of DTI ratios:
1. Front-End Ratio (Housing Ratio)
This is the percentage of your gross monthly income that goes toward housing expenses only. That includes:
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- Mortgage principal and interest
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- Property taxes
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- Homeowners insurance
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- HOA fees (if applicable)
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- PMI (Private Mortgage Insurance), if required
Formula:
Front-End DTI = (Monthly Housing Expenses / Gross Monthly Income) × 1002. Back-End Ratio (Total DTI)
This includes all monthly debt obligations, including:
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- Housing expenses (as above)
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- Credit card minimums
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- Auto loans
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- Student loans
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- Personal loans
Formula:
Back-End DTI = (Total Monthly Debt Payments / Gross Monthly Income) × 100Why DTI Is Important
Lenders use your DTI ratio to determine how much additional debt you can reasonably handle. A high DTI signals a higher risk of default and may result in:
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- Loan denial
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- Higher interest rates
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- Lower loan amount approvals
Even if your credit score is excellent, an excessively high DTI can still be a barrier to mortgage approval.
DTI Guidelines by Loan Type
Different loan programs have different acceptable DTI thresholds:
| Loan Type | Max Front-End DTI | Max Back-End DTI |
|---|---|---|
| Conventional | 28% | 36% – 45% (w/ strong credit) |
| FHA | 31% | 43% – 50% (with compensating factors) |
| VA | N/A | 41% (flexible with residual income) |
| USDA | 29% | 41% |
Note: These are general guidelines. Lenders may approve higher DTIs with compensating factors like high credit scores, large savings, or low LTV.
See how much you should afford with our Loan Affordability Calculator!
How to Lower Your DTI Before Applying
If your DTI is on the high side, consider these strategies:
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- Pay down high-interest debt, especially credit cards
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- Avoid taking on new loans before or during mortgage underwriting
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- Consider a longer loan term to reduce monthly mortgage payments
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- Increase your income with a side hustle or raise (if feasible)
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- Refinance or consolidate debts to lower your monthly payments
Real-World Example
Let’s say you earn $6,000/month gross and have the following debts:
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- Auto loan: $400
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- Student loan: $300
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- Credit card minimums: $100
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- Proposed housing costs: $1,500
Total Debt = $2,300 Back-End DTI = ($2,300 / $6,000) × 100 = 38.3%
This would likely be acceptable for an FHA loan and possibly even a Conventional loan if you have strong credit.
Dave Ramsey’s Take on DTI
Popular finance expert Dave Ramsey recommends an even stricter limit: No more than 25% of your take-home pay should go toward your mortgage payment. While not a lender rule, it reflects a more conservative approach to home affordability.
For example:
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- Take-home pay: $4,500/month
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- 25% cap = $1,125 max housing expense
This approach builds more breathing room into your budget and may reduce financial stress.
General DTI Questions
Can I get a mortgage with a high DTI?
Yes, it’s possible — but it depends on the loan type and your full financial picture. FHA loans, for example, allow DTIs as high as 50% in some cases, especially if you have strong compensating factors like good credit or significant cash reserves. Conventional loans are stricter, generally capping DTI at 43%–45%. A higher ratio could result in a smaller loan approval or higher interest rates.
Do student loans count toward DTI?
Yes, student loans are usually factored into your debt-to-income ratio. Even if they’re in deferment or forbearance, lenders will often assign a calculated monthly payment — typically 0.5% to 1% of the loan balance — to account for future repayment. FHA, VA, and conventional loan programs each handle this a bit differently, so check with your lender about their guidelines.
Is DTI based on gross or net income?
Lenders calculate DTI using gross monthly income — the amount you earn before taxes and deductions. This includes your base salary, commissions, bonuses, or any consistent additional income (like alimony or side work). Because it doesn’t account for taxes or take-home pay, your real budget may feel tighter than what your DTI suggests.
Can DTI be too low?
Technically, no — a lower DTI just means you have less debt compared to your income, which lenders usually see as a positive. However, if your DTI is extremely low, it may prompt some underwriters to ask why you carry so little debt or to verify the consistency of your income. But in most cases, a low DTI gives you stronger approval odds and more borrowing flexibility.
How DTI Affects Mortgage Approval
What’s more important: DTI or credit score?
Both matter, but their weight depends on the loan program and lender. Your credit score affects your interest rate and eligibility, while your DTI ratio impacts how much you can borrow. If your DTI is too high, even a great credit score might not get you approved. Ideally, aim to balance both for the best mortgage terms.
What’s a good DTI to aim for when buying a home?
A good target for most buyers is a back-end DTI of 36% or less. That means all your monthly debts — mortgage, credit cards, student loans, etc. — shouldn’t exceed 36% of your gross monthly income. Some programs allow up to 45% or more, but staying below 36% gives you a better chance at approval and protects your monthly budget.
Can I lower my DTI quickly before applying?
Yes. Paying off or paying down revolving credit (like credit cards) can reduce your DTI ratio almost immediately. Avoid financing large purchases before applying for a loan, and if possible, increase your income through bonuses, side work, or adding a co-borrower. Even small adjustments can have a big impact on how much you qualify for.
Final Thoughts
Your Debt-to-Income ratio is one of the most important metrics in the mortgage approval process. Understanding how it works, and how lenders interpret it, can empower you to make smarter decisions when preparing to buy a home.
Use it as a planning tool, not just a qualification check. Whether you’re aiming for approval or just want to better understand your finances, managing your DTI is a powerful step toward long-term financial health.
