Debt-to-Income Ratio (DTI) for a Mortgage: How It's Calculated and How to Lower It

If you've ever wondered why a lender approved you for one number and not a higher one, the answer is usually your debt-to-income ratio, or DTI.

How DTI is calculated

DTI = your total monthly debt payments ÷ your gross monthly income (before taxes).

Example: You earn $6,000 a month before taxes. Your new house payment would be $1,650, plus a $350 car payment and $100 in credit card minimums. That's $2,100 in monthly debt. $2,100 ÷ $6,000 = 35% DTI.

What counts

Your full proposed house payment: principal, interest, property taxes, homeowners insurance, mortgage insurance and HOA dues
Car loans and leases
Student loans (here's how they're counted)
Minimum credit card payments
Personal loans, child support and alimony

What doesn't count

Groceries, utilities, phone and internet, car insurance, subscriptions and childcare. That's why a loan approval isn't the same as a comfortable budget. Here's how to set a comfortable target.

Typical limits

Lenders often look at two ratios: housing alone (the "front-end" ratio) and all debts (the "back-end" ratio). Maximums vary by loan program, credit score, down payment and reserves. Many conventional and government loans can go into the mid-40s, and some approvals go to 50% with strong compensating factors. Iowa Finance Authority's FirstHome program, for example, allows up to 50%.

How to improve your DTI

Pay off small loans. A car loan with a few payments left can be worth paying off.
Pay down credit cards. Lower balances mean lower minimum payments, and usually a better credit score too.
Don't take on new debt before or during the loan process.
Document all your income. Overtime, bonuses, part-time work and other income may count with the right history.
Consider a co-borrower whose income can be added to the application.

Before you pay anything off, talk to me first. Sometimes paying off one specific debt makes a big difference and another makes none. I'll show you which move gets you the most buying power.

Frequently asked questions

What is a good debt-to-income ratio for a mortgage?

Many advisors suggest keeping total DTI around 36% or lower for comfort. Loan programs often approve higher ratios, sometimes up to 45% to 50% depending on the program, credit and other factors.

What debts count in my debt-to-income ratio?

Your proposed house payment (principal, interest, taxes, insurance, mortgage insurance and HOA dues), plus minimum payments on credit cards, auto loans, student loans, personal loans, child support and alimony. Everyday expenses like groceries and utilities don't count.

How can I lower my debt-to-income ratio quickly?

Pay off small installment loans or pay down credit card balances, avoid new debt, and make sure all of your qualifying income is documented. A co-borrower's income can also help.