Debt-to-Income Ratio Explained: What Lenders Look For
Your debt-to-income ratio - often called DTI - is one of the most important numbers lenders use when deciding whether to approve your mortgage. It doesn’t measure how much money you have in the bank. It measures how much of your income is already spoken for.
Many borrowers are surprised when they’re approved for less than they expected - or denied altogether - despite having solid income. In most cases, DTI is the reason. In this guide, we’ll break down exactly how DTI works, what lenders look for, and how to improve yours before you apply.
What Is Debt-to-Income (DTI) Ratio?
Debt-to-income ratio compares your monthly debt obligations to your gross monthly income. It shows lenders how much of your income is already committed before adding a mortgage payment.
The formula is simple:
Monthly debt payments ÷ gross monthly income = DTI
If you earn $6,000 per month and have $2,400 in monthly debts, your DTI is 40%. The higher the percentage, the tighter your budget appears to a lender.
What Counts (and Doesn’t) in DTI
Lenders only include recurring monthly debts that appear on your credit report or legal obligations.
Included
- Mortgage payment (PITI)
- Credit card minimum payments
- Auto loans
- Student loans
- Personal loans
- Child support or alimony
Not included
- Utilities
- Groceries
- Phone bills
- Streaming subscriptions
- Insurance outside escrow
Front-End vs Back-End DTI
There are two DTI calculations, but only one truly matters.
- Front-end DTI: housing payment only
- Back-end DTI: housing + all other debts
Most lenders focus on back-end DTI because it shows your total financial obligation, not just housing.
What Is a Good DTI for a Mortgage?
- Under 36%: Very strong
- 36–43%: Common approval range
- 43–50%: Possible with strong compensating factors
- Over 50%: Difficult to approve
Approval limits aren’t comfort limits. Many borrowers approved at high DTI later regret stretching their budget.
DTI Limits by Loan Type
- Conventional: typically up to 43–45%
- FHA: often up to 50% with factors
- VA: flexible, focuses on residual income
- USDA: usually capped around 41%
How Lenders Approve Borrowers With Higher DTI
Lenders may allow higher DTI if other parts of your application are strong.
- High credit scores
- Large down payment
- Significant cash reserves
- Stable, long-term employment
How DTI Affects Your Interest Rate
Higher DTI increases lender risk. That risk may show up as:
- Higher interest rates
- Stricter approval conditions
- Lower maximum loan amounts
How to Lower Your DTI Before Applying
- Pay down credit cards
- Pay off small installment loans
- Increase documented income
- Lower your target purchase price
DTI vs Real Affordability
DTI tells lenders if you qualify - not if you’ll be comfortable. Escrow increases, maintenance, and lifestyle costs matter.
Explore the full picture at Home Buying & Affordability.
Calculators to Test Your DTI
Common DTI Mistakes That Get Borrowers Denied
- Ignoring student loan calculations
- Using gross instead of net income
- Taking on new debt before closing
- Maxing out credit cards
Want to Know If Your DTI Works in Real Life?
Calculate your DTI, test different home prices, and make sure your budget supports your life - not just lender approval.