How lenders measure DTI
Debt-to-income ratio compares your monthly debt payments with your gross monthly income, before tax. Lenders look at two versions. The front-end ratio includes only housing costs. The back-end ratio, the one people usually mean, includes housing plus all other required debt payments such as car loans, student loans and card minimums. Everyday bills like groceries and utilities do not count.
DTI = total monthly debt payments ÷ gross monthly income × 100
With $7,000 of gross income and $2,770 of debt payments, DTI is about 40%.
What counts as good
A common guideline is the 28/36 rule: housing under 28% and total debt under 36% of gross income. For mortgages, 43% has long been a key threshold for qualified mortgages, while some programs allow up to about 50% with strong credit or reserves. Lowering DTI before applying, by paying down a card or car loan, can improve the rate you are offered.
Common questions
What is a good debt-to-income ratio?
Under 36% is generally considered healthy; under 43% is acceptable to many mortgage lenders.
Does rent count in DTI?
For renters, lenders usually look at the proposed mortgage payment instead. For general budgeting, include rent.
How can I lower my DTI quickly?
Pay off small balances entirely to remove their payments, or increase income.
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