Your debt-to-income ratio (DTI) is your total monthly debt payments divided by your gross monthly income, written as a percentage. If you earn $6,000 a month before taxes and pay $2,175 a month toward a mortgage, car loan, student loan and credit card minimum, your DTI is $2,175 ÷ $6,000 = 36.25%. Lenders use DTI to judge whether you can take on a new payment, and it is one of the main factors in how much they will let you borrow.
The DTI formulas
There are two versions. Mortgage lenders look at both.
The back-end ratio (often just called DTI) includes every debt. The front-end ratio, also called the housing ratio, includes only the housing payment: principal, interest, property tax, homeowners insurance, mortgage insurance and HOA dues.
Step 1: Add up gross monthly income
Use income before taxes and deductions:
- Salary: annual salary ÷ 12
- Hourly: hourly rate × weekly hours × 52 ÷ 12
- Biweekly paychecks: gross per check × 26 ÷ 12
- Self-employed: lenders typically average net profit from your last two years of tax returns, not gross receipts
- Other income: alimony, child support, Social Security, pension or rental income can count if it is documented and expected to continue
Step 2: Add up monthly debt payments
Use the minimum required payment, not what you actually pay.
| Counts in DTI | Does not count |
|---|---|
| Mortgage or proposed housing payment (PITI + HOA) | Rent, when applying for a mortgage |
| Auto loans and leases | Utilities, phone and internet |
| Student loans (even if deferred, lenders often count a payment) | Groceries, gas and other living costs |
| Credit card minimum payments | Car, health and life insurance premiums |
| Personal loans and buy-now-pay-later plans that report | Taxes and payroll deductions |
| Child support and alimony you pay | Medical bills not in collections or on a payment plan |
| Co-signed loans (unless you prove someone else pays) | Subscriptions and memberships |
For student loans with a $0 payment, loan programs set their own rules; some count a percentage of the balance, such as 0.5% or 1% a month, instead of zero.
Worked example: homeowner
Gross income: $72,000 a year, so $6,000 a month.
| Monthly debt | Payment |
|---|---|
| Mortgage (principal, interest, tax, insurance) | $1,500 |
| Car loan | $350 |
| Student loan | $250 |
| Credit card minimum | $75 |
| Total | $2,175 |
- Back-end DTI: $2,175 ÷ $6,000 = 36.25%
- Front-end DTI: $1,500 ÷ $6,000 = 25.00%
Worked example: renter applying for a mortgage
Same $6,000 income, currently renting. The lender replaces the rent with the proposed payment of $1,800 on the new home and adds the $675 of other debts:
- Back-end DTI: ($1,800 + $675) ÷ $6,000 = 41.25%
- Front-end DTI: $1,800 ÷ $6,000 = 30.00%
That back-end figure is above the classic 36% guideline but within what many programs accept. Run your own numbers in the debt-to-income ratio calculator.
What lenders accept
Limits depend on the loan program, credit score, down payment and cash reserves. Common reference points:
| Loan type | Typical DTI guideline |
|---|---|
| Conventional (Fannie Mae, Freddie Mac) | Up to 36% manually underwritten, up to 45% with compensating factors, up to 50% through automated underwriting |
| FHA | 31% front-end and 43% back-end standard; higher possible with automated approval and strong factors |
| VA | 41% guideline, with residual income often the deciding test |
| USDA | 29% front-end and 41% back-end guideline |
| Personal loans and auto loans | Varies by lender; many prefer under about 40% to 45% |
The CFPB’s former qualified-mortgage rule used a 43% cap; since 2021 that test has been replaced by a pricing-based standard, but lenders must still consider DTI or residual income under the ability-to-repay rule. For your own comfort, the CFPB suggests aiming for 36% or less.
Turning DTI into a borrowing limit
You can work backward from a target ratio to the largest payment you can add:
At $6,000 a month with $675 of non-housing debt and a 43% target: 0.43 × $6,000 − $675 = $1,905 for housing. At a 36% target it is $1,485. The how much house can I afford calculator and the how much loan can I afford calculator convert that payment into a price or loan amount, and the guide how much house can I afford on a $100,000 salary walks through the full calculation.
How to lower your DTI
- Pay off small balances completely. Eliminating a $75 minimum lowers DTI more than paying $1,000 toward a large installment loan whose payment does not change.
- Avoid new debt before applying. A new car loan or store card adds a payment and can push you over a limit.
- Increase documented income. A raise, a co-borrower or a steady side income with a two-year history can raise the denominator.
- Refinance or consolidate. A longer term or lower rate can shrink monthly payments, though it may cost more interest over time.
- Choose a less expensive home or a larger down payment to reduce the housing payment.
For a plan to clear several debts, compare debt snowball vs. avalanche.
DTI vs. credit utilization
They are often confused. DTI compares payments to income and is not part of your credit score. Credit utilization compares credit card balances to credit limits and is a major factor in credit scores. Paying down a card can improve both, but a high income does not offset high utilization, and a great score does not guarantee an acceptable DTI.
This guide is general information and not financial advice. Each lender and loan program applies its own underwriting rules; ask your lender how they will calculate your DTI before you apply.
Frequently asked questions
Is DTI based on gross or net income?
Gross income, meaning pay before taxes, retirement contributions and other deductions. That is the standard lenders use, which is one reason a DTI that looks acceptable to a lender can still feel tight in your actual budget.
Does rent count in my debt-to-income ratio?
Not when a mortgage lender evaluates you, because the new housing payment replaces your rent. Lenders count the proposed mortgage payment, including taxes and insurance, plus your other debts. For your own budgeting, though, rent is your biggest fixed cost.
What is a good debt-to-income ratio?
The CFPB suggests homeowners keep total debt payments at or below 36% of gross income. Many lenders approve higher ratios, up to 43% to 50% depending on the loan program, but lower is safer and usually gets better terms.
Do utilities, phone bills and insurance count as debt?
No. DTI includes only debt obligations that show up on your credit report or are legally required, such as loans, credit card minimums, alimony and child support. Utilities, groceries, subscriptions and car insurance are not included, though they still matter for your budget.
Does paying off a credit card lower my DTI?
Yes, if it eliminates or reduces the minimum payment. Paying a card to zero removes its minimum from the calculation entirely. Paying down an installment loan only helps DTI once the loan is paid off, because the monthly payment usually stays the same until then.