Debt-to-Income (DTI) Ratio Calculator

What is Debt-to-Income (DTI) Ratio?

Your debt-to-income (DTI) ratio is the percentage of your gross monthly income that goes toward paying debts. Lenders use DTI as a key factor in mortgage decisions because it shows your ability to manage monthly payments and repay borrowed money.

Two Types of DTI

1. Front-End DTI (Housing Ratio)

Formula: (Monthly Housing Costs ÷ Gross Monthly Income) × 100

Housing costs include: Mortgage principal & interest, property taxes, homeowners insurance, HOA fees, and PMI (if applicable).

Standard limit: ≤ 28% for conventional loans, ≤ 31% for FHA

2. Back-End DTI (Total Debt Ratio)

Formula: (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100

Total debt includes: All housing costs PLUS auto loans, student loans, credit card minimum payments, personal loans, alimony, child support, and other recurring debts.

Standard limit: ≤ 36% for conventional loans, ≤ 43% for FHA

Why DTI Matters for Mortgages

• Mortgage Approval: Lenders use DTI as THE key factor in loan decisions
• Interest Rates: Lower DTI often qualifies for better rates (save thousands)
• Borrowing Power: Lower DTI means you can afford a more expensive home
• Financial Health: DTI indicates overall debt burden and stability

DTI Limits by Loan Type

Conventional Loans

• Front-End: ≤ 28%
• Back-End: ≤ 36% (ideal), up to 43% with strong credit/down payment
• Best For: Borrowers with good credit (620+) and 5-20% down payment
• Notes: Most common loan type, competitive rates, PMI required if <20% down

FHA Loans

• Front-End: ≤ 31%
• Back-End: ≤ 43%
• Best For: First-time buyers, lower credit scores (580+), small down payments (3.5%)
• Notes: Government-backed, easier qualification, but higher insurance costs

VA Loans (Veterans Only)

• Front-End: No specific limit
• Back-End: ≤ 41%
• Best For: Active-duty military, veterans, eligible spouses
• Notes: No down payment required, no PMI, funding fee applies

USDA Loans (Rural Properties)

• Front-End: ≤ 29%
• Back-End: ≤ 41%
• Best For: Rural/suburban homebuyers, low-to-moderate income
• Notes: No down payment, income limits apply, property must be in eligible area

What's Included in DTI?

✅ Included (Counts Toward DTI)

• Mortgage payment (principal & interest)
• Property taxes
• Homeowners insurance
• HOA/condo fees
• PMI (private mortgage insurance)
• Auto loan payments
• Student loan payments (even if deferred)
• Credit card minimum payments
• Personal loans
• Alimony and child support payments
• Any other recurring debt obligations

❌ NOT Included (Doesn't Count)

• Utilities (electric, water, gas, trash)
• Phone and internet bills
• Car insurance
• Health insurance
• Life insurance
• Groceries
• Entertainment subscriptions (Netflix, Spotify, etc.)
• Transportation costs (gas, public transit)
• Other living expenses

DTI Ranges and What They Mean

Excellent DTI: Under 28%

• ✅ Qualifies for all mortgage types
• ✅ Best interest rates available
• ✅ Lenders view you as low-risk
• ✅ Strong borrowing power
• Action: You're in great shape! Shop around for the best rates.

Good DTI: 28-36%

• ✅ Qualifies for most conventional mortgages
• ⚠️ May not get the absolute best rates
• ✅ Still considered financially healthy
• Action: Consider improving to under 28% for best terms, but you're mortgage-ready.

Moderate DTI: 36-43%

• ⚠️ May qualify with compensating factors (high credit score, large down payment)
• ⚠️ FHA and VA loans are likely options
• ⚠️ Conventional loans may require exceptions
• Action: Strongly consider debt reduction before buying to avoid financial strain.

High DTI: 43-50%

• ❌ Mortgage approval is difficult
• ❌ Limited loan options
• ❌ Higher interest rates if approved
• Action: Focus on debt payoff before applying. Delay home purchase if possible.

Very High DTI: Over 50%

• ❌ Mortgage approval is extremely unlikely
• ❌ You may be financially overextended
• Action: Prioritize debt reduction and income increase. Consider financial counseling.

How to Improve Your DTI

1. Pay Down Debt (Fastest Impact)

• Pay off smallest debts first: Snowball method for quick wins
• Target high-interest debt: Avalanche method saves most money
• Consider debt consolidation: Lower monthly payments by combining debts
• Focus on non-housing debt: Paying off car loans or credit cards helps both front-end and back-end DTI

2. Increase Income

• Side hustle: Gig work, freelancing (must show 2-year history for lenders)
• Ask for a raise: Higher base salary immediately improves DTI
• Overtime: Consistent overtime income counts toward DTI
• Rental income: 75% of rental income can be counted

3. Lower Your Housing Budget

• Buy a less expensive home: Reduces front-end DTI significantly
• Increase down payment: Lowers monthly mortgage payment and PMI
• Shop for lower interest rates: Even 0.25% lower can help
• Consider a longer loan term: 30-year vs 15-year lowers monthly payment

4. Avoid Taking on New Debt

• Don't buy a new car right before applying for a mortgage
• Avoid opening new credit cards
• Don't take out personal loans
• Wait until after closing to make major purchases

DTI Calculation Example

Sample Borrower:

• Gross monthly income: $6,000
• Proposed mortgage payment (P&I): $1,200
• Property tax: $200/month
• Homeowners insurance: $100/month
• Car payment: $400/month
• Student loan: $250/month
• Credit card minimums: $100/month

Calculations:

Front-End DTI:
Housing costs = $1,200 + $200 + $100 = $1,500
Front-End DTI = ($1,500 ÷ $6,000) × 100 = 25% ✅ (under 28%)

Back-End DTI:
Total debts = $1,500 (housing) + $400 + $250 + $100 = $2,250
Back-End DTI = ($2,250 ÷ $6,000) × 100 = 37.5% ⚠️ (over 36%, may need FHA)

Common DTI Mistakes to Avoid

1. Forgetting deferred student loans: Lenders often count these even if not currently paying
2. Using net income instead of gross: DTI is based on income BEFORE taxes
3. Ignoring HOA fees: These are part of housing costs
4. Not including PMI: If down payment is <20%, PMI adds to housing costs
5. Applying right after taking on new debt: New car loan can tank your DTI