Your debt-to-income ratio (DTI) measures how much of your gross monthly income goes toward debt payments. Lenders use it to decide whether to approve you for a mortgage, car loan, or other credit — and at what rate.
The Formula
DTI = (Total Monthly Debt Payments) / (Gross Monthly Income) x 100
Example: You earn $5,000/month before taxes. Your monthly debt payments include a $1,200 mortgage, $300 car payment, and $200 in minimum credit card payments. Total debt: $1,700. DTI = $1,700 / $5,000 = 34%.
What Counts as Debt?
Include all recurring minimum debt obligations:
- Mortgage or rent payment
- Car loans
- Student loans
- Credit card minimum payments
- Personal loans
- Child support or alimony obligations
Do not include utilities, groceries, insurance premiums, or subscriptions — these are expenses, not debt payments.
What Is a Good DTI?
- Under 36%: Healthy. Lenders view this favorably.
- 37% to 43%: Manageable. You may still qualify for loans, but with higher scrutiny.
- 43% to 50%: High. Most conventional mortgage lenders cap at 43% to 45%. You may be declined or offered worse rates.
- Above 50%: Distressed. Getting new credit will be very difficult. Focus on paying down debt first.
Front-End vs. Back-End DTI
Mortgage lenders often calculate two DTI numbers:
- Front-end DTI: Housing costs only (mortgage principal + interest + taxes + insurance) divided by gross income. Ideal: under 28%.
- Back-end DTI: All debt payments divided by gross income. This is the number most commonly referenced. Ideal: under 36%.
How to Lower Your DTI
- Pay down existing debt — especially high-balance revolving accounts
- Avoid taking on new debt before a major loan application
- Increase your income (side income counts if you can document it)
- Refinance existing loans to lower monthly payments
Bottom Line
Your DTI is one of the most important numbers lenders look at. Calculate yours before applying for any major loan, and take steps to reduce it if it is above 36%.