Debt-to-Income Ratio (DTI) compares your monthly debt payments to your gross monthly income. Lenders use it to determine your ability to manage monthly payments and repay debts.
Formula
DTI = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100
What Lenders Want
- 36% or lower — ideal for most lenders
- 43% — maximum for most conventional mortgages
- 50%+ — generally too high to qualify for new loans
Example
Monthly income: $6,000. Monthly debts: $1,800 (rent $1,200 + car $400 + student loan $200). DTI = $1,800 ÷ $6,000 = 30% — good standing.
Front-End vs. Back-End DTI
Lenders actually calculate two DTI figures. Front-end DTI only counts housing costs (mortgage, taxes, insurance) against income — typically capped around 28%. Back-end DTI counts all debts (housing plus car loans, credit cards, student loans) — typically capped around 36–43%. Mortgage approval requires passing both tests, not just one.
Lowering Your DTI
You can improve DTI by paying down revolving balances (which also helps your credit score), avoiding new debt before a major loan application, or increasing income. Because DTI is a ratio, paying off even one credit card can move it several percentage points if your income is fixed.