Debt-to-income ratio (DTI) compares your total monthly debt payments to your gross monthly income. It is one of the primary factors lenders use to evaluate mortgage applications and determine how much you can borrow.
Front-End and Back-End DTI
Lenders calculate two DTI ratios:
- Front-end DTI: Housing costs only (mortgage principal, interest, property taxes, insurance) divided by gross monthly income. Most lenders want this below 28%.
- Back-end DTI: All monthly debt payments (housing plus car loans, student loans, credit cards, personal loans) divided by gross monthly income. Most lenders want this below 43%.
DTI Formula
DTI = (Total Monthly Debt Payments / Gross Monthly Income) × 100
If your gross monthly income is $7,000 and your total monthly debt payments (including proposed mortgage) are $2,800, your back-end DTI is 40%.
Maximum DTI by Loan Type
Conventional loans (Fannie Mae/Freddie Mac) typically allow up to 43–50% back-end DTI for well-qualified borrowers. FHA loans allow up to 57% DTI in some cases. VA loans look at residual income rather than DTI ratio. Jumbo loans (above conforming limits) often have stricter DTI requirements of 36–43%.
Reducing DTI Before Applying
If your DTI is too high, you have three levers: increase income, pay down existing debts, or reduce the proposed mortgage amount (smaller loan or larger down payment). Paying off a car loan or high credit card balance before applying can meaningfully reduce your back-end DTI and improve your loan terms. Use the Home Affordability Calculator to see how your current debt load affects your maximum home price.