Your debt-to-income ratio, or DTI, is one of the most important numbers a lender looks at when you apply for a mortgage. It compares your monthly debt payments to your gross monthly income and helps the lender decide how much you can borrow. Understanding the mortgage debt-to-income ratio helps you prepare before you apply.
The short answer: DTI is your total monthly debt payments divided by your gross monthly income, expressed as a percentage. A lower DTI gives you more room in your budget for a mortgage. Use our mortgage calculator to estimate your payment.
The debt-to-income ratio formula
The basic formula is:
DTI = (total monthly debt payments ÷ gross monthly income) × 100
The result is a percentage. For example, if your monthly debts are $1,500 and your gross monthly income is $5,000, your DTI is 30 percent.
A clear calculation example
These numbers are for illustration only and do not represent a rate quote, a loan offer or a guarantee of any kind.
Suppose your gross monthly income is $6,000. Your monthly debts are:
- Car loan: $400
- Student loan: $250
- Credit card minimum payments: $150
- Total monthly debts: $800
Your DTI is ($800 ÷ $6,000) × 100 = about 13.3 percent.
When you add a mortgage payment, the lender looks at two ratios:
- Front-end ratio: your housing payment (principal, interest, taxes and insurance) divided by your gross monthly income.
- Back-end ratio: your housing payment plus all other monthly debts, divided by your gross monthly income.
Lenders usually focus on the back-end ratio, but both matter.
What debts are included?
Lenders typically count these monthly debts:
- Car loans
- Student loans
- Credit card minimum payments
- Personal loans
- Child support or alimony
- Any other monthly debt that appears on your credit report
What about income?
Lenders use your gross monthly income, before taxes. For income that varies, such as bonuses, commissions or self-employment, lenders usually look at a longer history to confirm it is stable and likely to continue.
What is a good DTI?
There is no single number that works for every loan. Different loan programs have different DTI guidelines, and lenders can have their own overlays. In general, a lower DTI gives you more room in your budget and can strengthen your application.
How to lower your DTI
- Pay down debt: reducing your balances lowers your monthly payments.
- Avoid new debt: do not take on new loans or credit cards before you apply.
- Increase your income: a higher gross income lowers your ratio.
- Keep credit card balances low: this can lower your minimum payments.
- Wait to apply: if you expect a raise or a bonus, timing your application can help.
Frequently asked questions
What DTI do I need for a mortgage? DTI guidelines vary by loan program and lender. A lower DTI is generally better. Ask your loan officer what guidelines apply to your situation.
Does rent count toward my DTI? If you are buying a home, your current rent is usually replaced by the new mortgage payment and is not counted as a separate debt.
Are student loans included in my DTI? Yes. Student loans are typically counted as a monthly debt, even if they are in deferment.
Can I still get a mortgage with a high DTI? It depends on the loan program, your credit, your assets and the lender's guidelines. A loan officer can review your full situation.
Ready to see what you can afford?
When you are ready, get a free quote or get pre-approved with Alex.
You can also call Alex Al-Ammar at (313) 992-9898 or email Alex@vestalending.com.
This article is for general information only. It is not legal, tax or financial advice. DTI guidelines vary by loan program and lender. Figures are illustrative only. Speak with a qualified professional about your individual situation.
