When you apply for a mortgage, lenders look at more than just your credit score and down payment. One of the most important numbers they evaluate is your debt-to-income (DTI) ratio. This simple percentage plays a huge role in whether you get approved—and the type of loan and interest rate you qualify for.
In this guide, we’ll break down what DTI is, how it’s calculated, why it matters, and how you can improve it before applying for a mortgage.
What Is Debt-to-Income (DTI) Ratio?
Your DTI ratio measures how much of your monthly income goes toward paying debts. It helps lenders understand your ability to manage monthly payments and take on additional debt like a mortgage.
There are two types of DTI ratios lenders usually consider:
- Front-End Ratio (Housing Ratio):
- Percentage of your gross monthly income that goes toward housing costs (mortgage payment, property taxes, insurance, HOA fees).
- Back-End Ratio (Total DTI):
- Percentage of your gross monthly income that goes toward all monthly debts (housing costs + student loans, car loans, credit cards, etc.).
How to Calculate Your DTI Ratio
Here’s the formula:
DTI = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100
Example:
- Gross monthly income: $6,000
- Monthly debt payments:
- Car loan: $400
- Student loan: $250
- Credit cards: $150
- Estimated new mortgage: $1,600
Total debt = $2,400
👉 DTI = ($2,400 ÷ $6,000) × 100 = 40%
Why DTI Matters for Mortgage Approval
Lenders use DTI to assess risk. A lower DTI suggests you have enough income to comfortably handle a mortgage payment, while a higher DTI indicates you may be financially stretched.
Typical DTI Guidelines (2025):
- 36% or lower → Considered excellent; strong chance of approval.
- 37%–43% → Acceptable for many conventional and FHA loans.
- 44%–50% → Higher risk; may still qualify for FHA, VA, or other flexible programs.
- Over 50% → Very difficult to qualify without compensating factors.
💡 Some government-backed loans (like FHA and VA) allow higher DTIs than conventional lenders.
How to Improve Your DTI Before Applying
If your DTI is too high, here are steps to lower it:
- Pay down debt – Focus on high-interest credit cards or personal loans.
- Avoid new loans – Don’t take on car loans or new credit lines before applying.
- Increase income – A raise, side job, or rental income can improve your ratio.
- Recalculate budget – Make sure your new home purchase fits comfortably within your means.
The Bottom Line
Your debt-to-income ratio is one of the most important factors in mortgage approval. By understanding how it’s calculated and taking steps to improve it, you can boost your chances of securing a mortgage with better terms.
👉 Pro Tip: Before applying, check your DTI and simulate how a new mortgage payment will affect it. Being prepared can make the approval process smoother and less stressful.