Web Content Viewer

Debt-to-Income Ratio for Mortgages

What DTI Do You Need to Buy a House?

Your debt-to-income ratio (DTI) is one of many factors lenders consider when deciding if you're eligible for a mortgage. If you want to get an idea of how much you can borrow, you should know how to calculate your debt-to-income ratio. It's also important to understand the range of debt-to-income ratios required by mortgage lenders.

This guide will explain all you need to know about debt-to-income ratio, including how this ratio works, how to calculate it, and how much debt lenders will allow you to have and still get approved to borrow.

What Is Debt-to-Income Ratio?

Debt-to-income ratio is a simple ratio that compares your monthly debt payments to your gross (pre-tax) monthly income.

An example is the best way to understand DTI ratio. If your total debt payments add up to $2,000 per month and your gross monthly income is $5,000, you'll calculate your DTI by dividing $2,000 by $5,000. This gives you a 0.4, or 40%, debt-to-income ratio.

Lenders evaluate your DTI ratio when determining if you can qualify to borrow for a house. The goal is to make sure you are not committing too much of your income to debt, which could put you at risk of missing payments.

What’s the Difference Between Front-End DTI and Back-End DTI?

Mortgage lenders often look at your front-end and back-end debt-to-income ratios when they review your loan application. These ratios show the lender different aspects of your DTI:

Front-end DTI: Your front-end DTI is the ratio of housing payments to income. It compares the cost of principal, interest, taxes, and insurance to gross income. While 28% is most common, some government-backed loans (FHA and VA loans) may allow for higher front-end ratios.
Back-end DTI: Your back-end DTI looks at total debt relative to income. It includes your new housing payment and all other debts like a car loan, credit card bills, and personal loan debt. Your back-end ratio should ideally be around 36%.

Mortgage lenders may require you to meet both of these criteria if you want to be approved to borrow. However, you can usually get approved for a mortgage with higher DTI ratios if you meet other requirements.

How To Calculate Debt-to-Income Ratio

You can calculate your debt-to-income ratio using a simple formula.

Take the total of your monthly debt payments.
Divide this total by your monthly income.
Express the result as a percentage.

Here are a few examples.

Total Monthly Debt Payments	Monthly Gross Income	Debt-to-Income Ratio (numeric)	Debt-to-Income Ratio (%)
$750	$5,000	.15	15%
$1,250	$5,000	.25	25%
$1,750	$5,000	.35	35%

Once you have these totals, divide your total monthly debt payments by your monthly gross income to calculate your debt-to-income ratio. You can also use our debt-to-income calculator to estimate your DTI.

Debt-to-Income Ratio (DTI) Calculator

Use our calculator to estimate your debt-to-income ratio. Enter your total monthly debt payments and your monthly income to calculate your DTI!

All fields are required.

This DTI calculator is made available as a self-help tool for your personal use. We do not guarantee its accuracy or applicability to your individual circumstances. Resulting calculations are for illustrative and informational purposes only and are not intended as investment or financial advice. Consult a qualified financial advisor before making important personal finance decisions. To get a better understanding your debt-to-income ratio, speak with a loan advisor at Freedom Mortgage.

Your DTI is
%

Woman writing on notebook with laptop open at home desk.

What Does Debt-to-Income Ratio Include?

When exploring DTI ratios, you need to know what is included in the calculation. Not every monthly obligation is included. Here is a table showing what counts towards your DTI versus what doesn't.

Included in DTI	Not Included in DTI
Rent or mortgage (including your new mortgage) Credit cards Car loans Student loans Personal loans Alimony and child support payments	Insurance Utilities Cable bills Cell phone bills

Your monthly gross income should include wages earned, plus tips and bonuses if applicable. It should also include Social Security income and pension payments, child support, and alimony, if you wish this income to be considered.

What Debt-to-Income Ratio Do You Need to Buy a House?

Lenders often require a maximum debt-to-income ratio between 36% and 43% to approve you for a mortgage to buy a house.

Some lenders may accept a DTI ratio of 45% or higher when you’re buying a home with a conventional loan. However, these higher DTIs usually come with higher credit scores and income requirements. You may also need "compensating" factors, such as a larger down payment.

Keep in mind that lenders will include the estimated cost of your new monthly mortgage payment when they calculate your debt-to-income ratio.

This is important to know because if the estimated mortgage payment is higher than your current housing costs -- such as your rent or an existing mortgage -- your debt-to-income ratio is likely to increase. Learn more about income percentages for mortgages income percentages for mortgages.

Debt-to-Income Ratio and Mortgage Affordability

Calculating your DTI is important to determining how much home you can afford. You can see both how much of your income will be taken up by housing costs and how much, in total, will go toward paying all of your debt.

This gives insight into whether you can comfortably live on what's left or if you will find yourself "house poor", devoting so much money to your house that you have little left for other goals.

What Is a Good Debt-to-Income Ratio?

Financial professionals often recommend keeping your debt-to-income ratio under 36% when you are applying for a mortgage. This is the number Fannie Mae targets for many of its loans.

Lower DTI ratios are typically preferred because they demonstrate your ability to repay your debts and manage other routine bills, along with unexpected expenses like car repairs, home repairs, and medical bills. A low DTI means you can comfortably pay your expected monthly mortgage expenses, with money left over to cover everything else you need.

If your DTI is lower, lenders may be more willing to win your business with competitive interest rates or better terms. This means a good debt-to-income ratio may improve your chances of both getting approved for a mortgage to buy or refinance a home and being offered a good rate.

Debt-to-Income Ratio by Loan Type

Both your lender's policies and the type of loan you are taking out will determine what the maximum debt-to-income ratio is. Here are the DTI ratios lenders typically use for different kinds of loans:

Conventional loans: Many conventional loan lenders use the 28/36 rule to determine if you are eligible to borrow, so your total debt should be below 36% of income. Some allow may allow DTI as high as 45% under certain conditions.
FHA loans: FHA loans are backed by the Federal Housing Administration. While lender policies vary, the maximum DTI is often around 43%.
USDA loans: USDA loans are guaranteed by the U.S. Department of Agriculture. Some lenders allow you to qualify for USDA loans with a DTI as high as 44%, especially with compensating factors.
VA loans: VA Loans are backed by the U.S. Department of Veterans Affairs. The maximum DTI for these loans is typically 41%.

How Do You Lower Your Debt-to-Income Ratio?

Lowering your DTI ratio could help improve your chances of being approved for a mortgage and getting a competitive rate. Fortunately, there are a few simple ways to reduce your debt-to-income ratio. Here's what you can do:

Pay off high-interest debt: By definition, paying off debt reduces your debt. When you have a high interest rate, you may have higher monthly payments, so eliminating this debt can have a big payoff in terms of getting your DTI within lender limits.
Consolidate debt: Debt consolidation allows you to combine multiple loans into one big new loan. You can shop around for a consolidation loan with favorable terms, including a lower monthly payment. That lower payment will reduce your DTI.
Refinance loans: You can refinance your mortgage refinance your mortgage or other outstanding debt. If you lower your interest rate, extend your payoff time, or both, you can reduce your monthly payments and improve your DTI.

A lower DTI means that a smaller percentage of your income goes to your mortgage percentage of your income goes to your mortgage and other debts you owe. The less income you have tied up in making monthly payments, the more money you will have for other things.

Final Thoughts: Debt-to-Income Ratio for Mortgages

Now you know how to calculate your debt-to-income ratio and why doing so is important before you apply for a mortgage.

If you’re thinking about buying a home soon, calculate your DTI ratio today. Ask your preferred lender what they like to see and work to get below their threshold. If you don’t think it’s possible, you might have to shop around with other lenders.

Once your DTI is within the lender's range, you should be approved more easily for a loan and may be offered a better rate. A mortgage loan officer can help you understand the lender's DTI requirements as well as offer insight into whether taking out a loan at your current debt levels makes sense for you.