Debt-to-income ratio is your total monthly debt obligations divided by your gross monthly income. It is the primary measure of whether you can carry a payment.
What counts as debt
Included:
- The proposed housing payment — principal, interest, taxes, insurance, mortgage insurance, HOA
- Car loans and leases
- Student loans (see below — the calculation is not obvious)
- Minimum credit card payments
- Personal loans and instalment debt
- Child support and alimony you pay
- Payments on other properties you own
- Co-signed loans, even if someone else pays them
Excluded:
- Your current rent
- Utilities, phone, internet, insurance premiums other than housing
- Groceries, childcare, medical costs
- 401(k) loan repayments (generally)
- Debts with fewer than ten remaining payments, in many cases
Note what is missing: childcare, which can exceed a mortgage payment, is not counted. DTI measures what lenders can verify, not what your budget actually feels like.
Student loans specifically
The most commonly miscalculated item. Rules differ by programme:
- Conventional — the actual payment on the credit report, including income-driven payments, even $0 in some circumstances
- FHA — the greater of the actual payment or 0.5% of the balance if the payment is $0
- VA — generally 5% of balance divided by 12 if deferred
On a $120,000 student loan balance, this is the difference between a $0 payment and a $600 monthly obligation — which can move your maximum purchase price by well over $100,000.
Front-end and back-end
- Front-end — housing payment only, over income. A guideline of 28% is traditional.
- Back-end — all debts including housing. This is the ratio that actually governs approval.
The actual limits
43% is the widely cited conventional ceiling, but automated underwriting will approve to 50% with compensating factors — significant reserves, a high credit score, low LTV. FHA can go higher still with strong factors.
But approvable and advisable are different. At 50% DTI, half your gross income before tax is committed to debt. After tax, that is a much larger share of what actually arrives. The affordability calculator lets you drag the ratio down and see what a comfortable payment actually buys.
How to improve it quickly
- Pay off small balances entirely rather than reducing large ones. Removing a $400 car payment helps far more than knocking $10,000 off a mortgage.
- Do not close old cards — it does not help DTI and can hurt your score.
- Document all income. Bonus, overtime, commission and side income can often be used with a two-year history.
- Consider a longer term to reduce the payment used in the calculation.
Common questions
No. Your current rent disappears when you buy, so it is excluded. The proposed housing payment is used instead.
Commonly 43% to 45% on conventional, up to 50% with strong compensating factors, and higher still on some FHA files. DSCR loans do not use personal DTI at all.
General information, not advice on your specific situation. Guidelines, limits and pricing change, and vary by lender, programme and state. Nothing here is a commitment to lend or an offer of credit. For tax or legal questions, consult a qualified professional.
Sree Basireddy · Mortgage Loan Officer, NMLS 2705737 · Loan Factory, Inc., NMLS 320841 · Equal Housing Opportunity