What are DTI requirements for a mortgage loan?

Generally speaking, you’ll need a DTI of no more than 43% to qualify for an FHA loan and 45% to qualify for a conventional loan. However, if your DTI is higher than 36%, you’ll likely need certain compensating factors like a good credit score or a certain amount of cash reserves. You should check with your lender and loan program for specific requirements.

Debt-to-income ratio (DTI): What is it and how is it calculated?

Q: Is all debt treated the same in my debt-to-income ratio?

Your DTI is calculated using regular, required and recurring debt payments, including housing, loans, credit cards, and child or spousal support. The DTI doesn’t necessarily weigh different types of debt differently, but your highest monthly payments will have the greatest impact on your DTI. Overall, the more debt you have, the harder it may be to qualify for a loan.

Q: Does my DTI influence my credit score?

No, your DTI doesn’t directly affect your credit score. However, both your DTI and your credit score are factors that mortgage lenders use to determine whether you’re eligible for a loan. If you have a high DTI, you could have your mortgage application denied, even if you have a high credit score. Similarly, you could be denied a mortgage if you have a low DTI but poor credit.

Q: Should I apply for a home loan with a high DTI?

While you don’t need a pristine DTI to qualify for a home, you’ll likely be denied if your DTI is higher than 45% or, in specific situations, 50%. If your DTI is higher than that, it may be worth taking some time to work on lowering your DTI before applying for a mortgage. Keep in mind that even if you qualify for a mortgage, if your DTI is at the top of the acceptable range, you’ll likely end up paying a higher interest rate, which will make your loan more expensive.

Author:

Miranda Crace

Mar 11, 2024

•

8-minute read

Man standing outside of garage with motorcycle.

Your debt-to-income ratio (DTI) is an important part of how mortgage lenders evaluate your financial health. DTI ratios represent how much debt you have compared to your income.

It’s important to know your DTI as you consider buying a home. If you have a high amount of debt compared to income, consider `lowering your debt before applying for a loan. Even if you’re prepared to apply for a loan, you may struggle to find a lender willing to work with a high DTI.

Let’s look at DTI, how it works and how it impacts your mortgage application so you can prepare to start shopping for homes.

What is debt-to-income ratio?

Your debt-to-income ratio, or DTI, is a percentage that tells lenders how much money you spend on monthly debt payments versus how much money you have coming into your household. You can calculate your DTI by adding your monthly minimum debt payments and dividing the total by your monthly pretax income.

The result can give you an idea of where your finances stand and how much home you can realistically afford.

Your lender may look at two types of DTI during the mortgage process: front-end and back-end DTI.

Front-end DTI

Front-end DTI only focuses on housing-related expenses. It’s calculated using your current monthly mortgage or rent payment, including property taxes, homeowners insurance and any applicable homeowners association dues.

Lenders typically won’t worry about this number when reviewing your mortgage application, except for some exceptions, such as Federal Housing Administration (FHA) loans. However, the result can give you an idea of where your finances stand and how much home you can realistically afford.

Back-end DTI

Back-end DTI includes your housing-related expenses and all the minimum required monthly debt payments your lender finds on your credit report, including credit cards, student loans, auto loans and personal loans.

Your back-end DTI is the number most lenders focus on because it gives them a more complete picture of your monthly spending.

See what you qualify for

Get started

Why is your DTI ratio important?

Your DTI offers lenders a better understanding of your overall financial health. The ratio shows how much debt you have relative to your monthly income. It helps lenders assess your ability to cover the cost of a monthly mortgage on top of any existing debt.

Infographic representation of Debt to income ratio (DTI).

What is a good debt-to-income ratio?

Most lenders will accept a DTI ratio of 43% or less. However, it’s helpful to understand how different ranges can impact your chances of approval when applying for a mortgage.

Let’s look at typical DTI ranges and how they can impact mortgage qualification:

DTI below 36%: A DTI ratio below 36% demonstrates to lenders that you have a manageable level of debt. You shouldn’t have trouble qualifying for a loan or line of credit.
DTI from 36% to 41%: A DTI ratio in this range indicates to lenders that you have a manageable level of debt and earn enough income to cover a new mortgage payment. Lenders are more likely to approve loans for borrowers with DTIs in this range.
DTI from 43% to 50%: A DTI ratio in this range often signals to lenders that you have a lot of debt and may struggle to repay a mortgage.
DTI over 50%: A DTI ratio of 50% or higher indicates a high level of debt and signals that the borrower is probably not financially ready to repay a mortgage. Lenders typically deny borrower applications when the DTI ratio is this high.

Figuring out your DTI can help you decide if now is the time to buy a home. If your DTI ratio is high, waiting may be a better option. However, if your ratio is low, you can take advantage of your proven ability to manage debt and apply for a home loan.

How to calculate debt-to-income ratio

Calculating your debt-to-income ratio is essential to understanding where you’ll stand with lenders before applying. Here’s how to calculate your DTI ratio in a few short steps.

Take the first step toward the right mortgage

Apply online for expert recommendations with real interest rates and payments

I want to buy a home

I’d like to refinance

1. Add up your minimum monthly payments

To calculate DTI, include your regular, required and recurring monthly payments. Only use your minimum payments – not the account balance or the amount you typically pay. For example, if you have a $10,000 student loan with a $200 minimum monthly payment, you should only include the $200 minimum payment when calculating DTI.

Expenses to include in your DTI calculations

Here are some examples of applicable debt when applying for a mortgage:

Your rent or monthly mortgage payment
Any monthly homeowners association (HOA) fees
Property taxes
Homeowners insurance payments
Auto loan payments
Student loan payments
Child support or alimony payments
Credit card payments
Personal loan payments

Expenses to exclude from your DTI calculations

Certain expenses should be left out of your minimum monthly payment calculation, including the following:

Utility costs
Health insurance premiums
Transportation costs
Savings account contributions
401(k) or IRA contributions
Entertainment, food and clothing costs

Total monthly payments example

Here’s an example of calculating your total monthly payments to determine your DTI. Imagine you have the following monthly expenses:

Rent: $500
Student loan minimum payment: $125
Credit card minimum payment: $100
Auto loan minimum payment: $175

Add $500, $125, $100 and $175 together, and the total is $900 in minimum monthly payments.

2. Divide your monthly payments by your gross monthly income

Your gross monthly income is the total pretax income you earn each month. If another borrower is applying with you, you should factor in their income and debts, too.

Once you’ve determined the total gross monthly income for everyone on the loan, divide the total of minimum monthly payments by the gross monthly income.

3. Convert your result to a percentage

Your initial result will be a decimal. To express your DTI ratio as a percentage, multiply the result by 100. In this example, your gross monthly income is $3,000, and your minimum monthly payment total is $900. When you divide $900 by $3,000, you’ll get 0.30. Multiply 0.30 by 100 to get 30, making your DTI ratio 30%.

You’d likely meet a lender’s DTI requirement because the DTI ratio falls below 43%.

FAQs about debt-to-income ratios

Here are a few frequently asked questions about DTI to help you prepare for the application process.

Is all debt treated the same in my debt-to-income ratio?

Ultimately, your total recurring debt influences your debt-to-income ratio and can improve or lower your chances of getting qualified for a mortgage. The ratio doesn’t weigh the type of debt differently. The more debt you have, the higher your DTI and the harder it may be to qualify for a great loan.

How quickly can I improve my DTI?

The fastest way to improve your DTI ratio is by paying down your debt. The more aggressively you pay it down, the more you’ll improve your ratio and chances of mortgage approval. You can also improve your DTI by growing your income with a side hustle or negotiating a raise at work.

Should I apply for a home loan with a high DTI?

While you can have a high DTI and qualify for a mortgage loan, it’s best to look for ways to reduce it. Lenders are typically less willing to approve mortgage loans for borrowers with high debt-to-income ratios. If a borrower qualifies for the loan, the lender may ask them to pay a higher interest rate. Lowering your DTI before applying can help you get a better interest rate.

Does my DTI influence my credit score?

Your debt-to-income ratio doesn’t influence your credit score. DTI is a formula that allows you to see how much of your gross monthly income goes toward repaying your fixed monthly debt. A high DTI doesn’t necessarily mean your credit score is low, provided you make your minimum payments on time.

Use your low DTI to get a mortgage

Apply online for expert recommendations

Start my application

The bottom line

Your debt-to-income ratio is a key factor when it comes to qualifying for a mortgage. It reflects the percentage of your gross monthly income allocated to paying off your recurring debt. Your DTI ratio helps lenders gauge how much mortgage you can comfortably afford.

A DTI of 43% or less can offer the most options when applying for a mortgage. Start an application today and see what options you’re eligible for. You can also give us a call at (833) 326-6018.

Miranda Crace

Miranda Crace is a Senior Section Editor for the Rocket Companies, bringing a wealth of knowledge about mortgages, personal finance, real estate, and personal loans for over 10 years. Miranda is dedicated to advancing financial literacy and empowering individuals to achieve their financial and homeownership goals. She graduated from Wayne State University where she studied PR Writing, Film Production, and Film Editing. Her creative talents shine through her contributions to the popular video series "Home Lore" and "The Red Desk," which were nominated for the prestigious Shorty Awards. In her spare time, Miranda enjoys traveling, actively engages in the entrepreneurial community, and savors a perfectly brewed cup of coffee.

Related resources

A rural cottage nestled in the mountains, suggesting a serene and remote living environment.

4-minute read

Co-borrower vs. co-signer: What's the difference?

If you need help getting a mortgage, a co-borrower or co-signer can bolster your application. Learn more about buying a home with a co-borrower or co-signer.

House with a brick path, highlighting architectural details and landscaping in a residential setting.

5-minute read

What is a lien and how does it work?

A lien gives a lender or creditor the ability to claim a property to pay off a debt. Learn how they work and about other types of property debt.

A brick olive-colored house, depicting a residential property.

5-minute read

Contingent vs. pending: What's the difference?

Home buyers sometimes confuse contingent versus pending. Learn the difference between pending and contingent and what the two statuses mean in real estate.