Debt-to-income ratio: what it is and why it matters

Your debt-to-income ratio (DTI) is your monthly debt payments, including the new mortgage, divided by your gross monthly income. It's one of the main ways lenders decide how much you can borrow.

How DTI Is Calculated

Debts include the new housing payment (principal, interest, taxes, insurance, HOA), car loans, student loans, minimum credit card payments, and other loans. Everyday expenses like utilities and groceries don't count.

Typical Limits

• Conventional: often up to about 45%, and sometimes up to 50% with strong credit and reserves
• FHA: can go higher with an automated approval and compensating factors
• VA: uses DTI along with "residual income," the money left over each month
• Non-QM: often up to about 50%, depending on the program

How to Lower Your DTI

• Pay off small balances, such as a car loan with a few payments left
• Pay down credit cards to lower minimum payments
• Add a co-borrower with income
• Choose a lower loan amount or a longer term
• Document all eligible income, such as bonuses, rental income, or part-time work

Loans That Don't Use DTI

DSCR loans for rental properties skip personal DTI. They qualify the property on its rent instead. For self-employed borrowers, bank statement and P&L loans still use DTI but calculate income in a way that often produces a much higher number than your tax return.

Debt-to-Income Ratio FAQ

Ivan Grigorian

In the financial industry since 2015. Licensed loan officer in Los Angeles, California. NMLS #1493724, with UTM Financial, LLC (NMLS #2591548). More about Ivan

This article is general education, not financial, tax, or legal advice. Loan guidelines vary by lender and change often. Not a commitment to lend.