Debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes toward monthly debt payments. It's the number lenders use to decide whether you can actually afford the mortgage payment you're applying for — and it surprises many borrowers how much it matters.
Front-End vs Back-End DTI
Lenders calculate two DTI ratios. Front-end DTI: housing costs only (PITI — principal, interest, taxes, insurance) divided by gross monthly income. Back-end DTI: all monthly debt payments (housing + car loans + student loans + credit card minimums + any other installment debt) divided by gross monthly income.
Standard limits: Front-end ≤ 28%, Back-end ≤ 36–43%. FHA loans allow higher back-end DTI, sometimes up to 57%. Conventional loans with strong credit and large down payments may allow up to 45–50%. These limits are where approval gets difficult, not where it's comfortable.
What Counts Against Your DTI
- •Monthly mortgage payment (PITI) — the proposed new payment
- •Minimum credit card payments (even if you pay in full)
- •Auto loan payments
- •Student loan payments — even income-driven plans count at the IBR payment or 0.5-1% of balance
- •Personal loan payments
- •Child support or alimony obligations
How to Lower Your DTI Before Applying
- 1.Pay off small debts completely — eliminating a $150/month car payment drops your back-end DTI significantly
- 2.Don't close old credit cards after paying them off — the available credit improves your credit score
- 3.Avoid taking on new debt for 6–12 months before applying
- 4.Increase income — a side hustle or raise helps if it can be documented with tax returns or pay stubs
- 5.Apply with a co-borrower whose income improves the combined DTI picture
Lenders look at your full financial picture, but DTI is often the binding constraint. A 780 credit score won't save you if your DTI is 55%. Focus on DTI first when preparing to buy a home.