Debt-to-Income Ratio Explained: How to Calculate Your DTI

Debt-to-income ratio (DTI) measures your monthly debt payments against your gross monthly income. To calculate it, divide your total monthly debts by your gross monthly income and multiply by 100. For example, if you earn $7,000/month and have $2,100 in monthly debts, your DTI is 30%. Most mortgage lenders require a DTI of 43% or less, though some programs allow up to 50% with compensating factors.

How to Calculate DTI

DTI is straightforward: total monthly debts divided by gross monthly income.

The Formula

DTI = (Total Monthly Debts ÷ Gross Monthly Income) × 100

Step-by-Step Calculation

Step 1: Add up all monthly debt payments

Step 2: Determine your gross monthly income (before taxes)

Step 3: Divide debts by income

Step 4: Multiply by 100 for percentage

Example Calculation

Marcus has:

Proposed mortgage payment: $2,200
Car payment: $450
Student loans: $280
Credit card minimums: $120
Total monthly debts: $3,050

Gross monthly income: $8,500

DTI = $3,050 ÷ $8,500 = 0.359 = 35.9%

Two Types of DTI

Lenders calculate two different DTI ratios.

Front-End DTI (Housing Ratio)

Measures only housing costs against income.

Includes:

Principal and interest
Property taxes
Homeowners insurance
HOA fees (if applicable)
Mortgage insurance (PMI/MIP)

Typical maximum: 28-31%

Calculation: Housing payment ÷ Gross income

Back-End DTI (Total Debt Ratio)

Measures all debts against income.

Includes everything in front-end, plus:

Car loans and leases
Student loans
Credit card minimum payments
Personal loans
Child support/alimony paid
Other installment debts

Typical maximum: 36-43% (up to 50% with strong factors)

Calculation: All monthly debts ÷ Gross income

Both Ratios Example

Jennifer earns $6,500/month gross.

Housing costs:

Proposed mortgage (PITI): $1,650
Front-end DTI: $1,650 ÷ $6,500 = 25.4% ✓

Total debts:

Housing: $1,650
Car loan: $380
Student loans: $220
Credit cards: $85
Total: $2,335
Back-end DTI: $2,335 ÷ $6,500 = 35.9% ✓

Both ratios are within typical limits.

DTI Requirements by Loan Type

Loan Type	Front-End Max	Back-End Max	With Compensating Factors
Conventional	No strict limit	43%	Up to 45-50%
FHA	31%	43%	Up to 50%
VA	No strict limit	41%	Higher with residual income
USDA	29%	41%	Up to 44%
Jumbo	36%	43%	Varies by lender

Compensating Factors

Higher DTI may be approved with:

Excellent credit score (720+)
Large cash reserves (6+ months)
Minimal payment increase from current rent
Significant down payment (20%+)
Stable, long-term employment
Additional income not used for qualifying

What Counts in DTI?

Debts That Count

Always included:

Proposed mortgage payment (PITI + PMI)
Car loans and leases
Student loans (even if deferred—see below)
Credit card minimum payments
Personal loans
Other mortgages
Child support and alimony paid
Timeshare loans
401(k) loans

Student loan special rules:

FHA: 1% of balance if payment not on credit report
Conventional: 0.5% of balance or actual payment
Income-driven plans: Actual payment used

Debts That Don’t Count

Utilities (electric, gas, water)
Cell phone and internet
Insurance (auto, health, life)
Subscriptions and memberships
Groceries and gas
Daycare and tuition
Medical bills not in collections

Income That Counts

Fully counted:

Salary and hourly wages
Overtime (with 2-year history)
Bonuses (with 2-year history)
Commission (with 2-year history)
Social Security
Pension and retirement
Disability income
VA benefits

Requires documentation:

Self-employment income (2-year average)
Rental income (typically 75% of net rent)
Alimony and child support (must continue 3+ years)
Part-time income (2-year history needed)

How DTI Affects Your Mortgage

Loan Approval

DTI is one of three major approval factors (credit, income, assets). High DTI can:

Result in denial
Limit loan amount
Require larger down payment
Require additional documentation

Interest Rate

While DTI doesn’t directly set your rate (credit score does that), extremely high DTI may:

Limit lender options
Push you toward higher-cost loan programs
Affect loan-level price adjustments

Loan Amount

Your maximum loan is limited by DTI. Using 43% back-end limit:

Gross Income	Max Total Debts	Max Housing (if no other debt)
$5,000	$2,150	$2,150
$6,000	$2,580	$2,580
$7,000	$3,010	$3,010
$8,000	$3,440	$3,440
$10,000	$4,300	$4,300

Other debts reduce your available housing payment dollar-for-dollar.

How to Lower Your DTI

Increase Income

Quick options:

Request a raise
Pick up overtime
Start a side gig
Add a co-borrower

Longer-term:

Change jobs for higher pay
Develop higher-paying skills
Build rental income

Pay Down Debt

Most impactful:

Pay off car loans (eliminates payment)
Pay off credit cards (eliminates minimum)
Pay off small installment loans

Strategic approach:

Target debts with 10 or fewer payments remaining
Eliminate debts that can be paid off with savings
Focus on debts with highest monthly payments

Eliminate Monthly Payments

Options:

Sell a vehicle and buy cheaper with cash
Pay off credit cards monthly (no carrying balance)
Consolidate debts to lower payment (careful—this can backfire)

DTI Reduction Example

Angela wants to qualify for a $350,000 mortgage ($2,212 payment). Her income is $6,800/month.

Current situation:

Car payment: $520
Student loans: $310
Credit cards: $150
Total non-housing: $980
With mortgage: $3,192
DTI: 47% ❌ (too high)

After paying off car ($8,400 remaining):

Student loans: $310
Credit cards: $150
Total non-housing: $460
With mortgage: $2,672
DTI: 39.3% ✓

Paying off the car dropped her DTI by nearly 8 points.

Common DTI Mistakes

Not Including All Debts

Lenders see everything on your credit report. Don’t forget:

Cosigned loans (they count as your debt)
Store credit cards
Buy-now-pay-later accounts
Deferred student loans

Using Net Income Instead of Gross

DTI uses gross (before-tax) income, not take-home pay. Using net income makes your DTI appear worse than it is.

Gross: $7,500/month → DTI calculation basis Net: $5,600/month → Not used for DTI

Ignoring the Full Housing Payment

Your housing payment includes more than principal and interest:

Property taxes
Homeowners insurance
PMI (if applicable)
HOA fees

A “$1,800 mortgage” might actually be $2,400 with all components.

DTI Calculator Approach

Quick Mental Math

For 43% DTI maximum:

Take your gross monthly income
Multiply by 0.43
That’s your maximum total debts
Subtract existing debts
Remainder is maximum housing payment

Example:

Income: $7,000
× 0.43 = $3,010 max debts
Current debts: $680
Max housing: $2,330

Online Calculators

Most mortgage websites offer DTI calculators. Enter:

Gross monthly income
Proposed housing payment
Monthly debt payments

The calculator shows your front-end and back-end DTI.

What If Your DTI Is Too High?

Pay Down Debt First

If you can reduce DTI by paying off debt, this is often the best path. Calculate how much payoff improves your situation.

Consider FHA

FHA allows DTI up to 50% with compensating factors. If conventional says no at 45% DTI, FHA might approve.

Add a Co-Borrower

A co-borrower’s income counts toward the calculation. If your spouse or family member has income, adding them can help.

Buy Less House

A smaller loan means a smaller payment and lower DTI. Consider:

Different neighborhood
Smaller home
Waiting and saving more for down payment

Wait and Improve

Sometimes the best answer is patience:

Pay down debt for 6-12 months
Increase income through job change or raise
Reapply when DTI is lower

Frequently Asked Questions

What is a good debt-to-income ratio?

Under 36% is considered good. Most lenders prefer back-end DTI under 43%. Below 36% gives you the most options and best terms.

What’s the maximum DTI for a mortgage?

Most conventional loans cap at 43-45%. FHA allows up to 50% with strong compensating factors. VA uses residual income instead of strict DTI limits.

Does rent count in DTI?

Current rent doesn’t count—it’s replaced by the proposed mortgage payment in the calculation. Only the new housing payment counts.

Do utilities count in DTI?

No. Utilities like electric, gas, water, internet and phone are not included in DTI calculations.

How do I calculate DTI for a mortgage?

Add all monthly debt payments (including proposed mortgage). Divide by gross monthly income. Multiply by 100 for percentage. Example: $3,000 debts ÷ $8,000 income = 37.5% DTI.

Can I get a mortgage with 50% DTI?

Possibly, through FHA with strong compensating factors (excellent credit, large reserves, minimal payment shock). Most conventional lenders won’t exceed 45-50%.