Understanding your debt-to-income ratio
When lenders review your mortgage application, one of the first numbers they calculate is your debt-to-income ratio — often shortened to DTI. Understanding what it is and how it works puts you in a much stronger position before you apply.
What is DTI?
Your DTI is the percentage of your gross monthly income that goes toward debt payments. Lenders look at two versions:
- Front-end DTI: your proposed housing payment (principal, interest, taxes, insurance) divided by gross monthly income
- Back-end DTI: all monthly debt payments combined (housing + car loans + student loans + credit cards + any other recurring obligations) divided by gross monthly income
Most lenders focus on back-end DTI.
What are the thresholds?
General guidelines by loan type:
| Loan Type | Typical Max DTI |
|---|---|
| Conventional | 45–50% |
| FHA | 43–57% (with compensating factors) |
| VA | 41% guideline (flexible with residual income) |
| USDA | 41–44% |
How to improve your DTI before applying
- Pay down revolving debt — even reducing a credit card balance can move the needle
- Avoid taking on new debt — don’t finance a car or open new credit lines before closing
- Increase income — documented side income (freelance, rental) may be counted if it has a two-year history
- Pay off a small installment loan — eliminating a monthly payment entirely has an outsized effect
Have questions about your numbers? Get in touch and we’ll walk through it together.
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