The short version
Key takeaways
- DTI is your total monthly debt payments divided by your gross monthly income.
- Lenders generally prefer a back-end DTI of 36% or lower; many mortgages cap it somewhere in the 40s, depending on the program.
- Only debt payments count — not rent, utilities, groceries or insurance (unless they're part of a mortgage payment).
- Paying off small balances entirely can lower DTI faster than spreading extra payments across every debt.
Your credit score tells a lender how you've handled debt in the past. Your debt-to-income ratio (DTI) tells them whether you can afford more of it now. It's one of the most important numbers in any loan application — especially for a mortgage — and one of the least understood.
The good news: it's simple to calculate, and you have more control over it than you might think.
The formula
DTI = total monthly debt payments ÷ gross monthly income
Multiply the result by 100 to get a percentage.
Monthly debt payments usually include:
- Mortgage or the proposed new housing payment (including property taxes, homeowners insurance and any HOA dues or mortgage insurance)
- Auto loan payments
- Student loan payments
- Minimum required credit card payments
- Personal loan payments
- Child support or alimony you're required to pay
- Payments on any other loans, including ones you've co-signed
Not usually included: rent (for non-mortgage loans), utilities, phone bills, groceries, car insurance, health insurance, subscriptions and other living costs.
Gross monthly income is what you earn before taxes and deductions, from all sources the lender can verify — salary, wages, self-employment income, and in some cases bonuses, alimony or other steady income.
A worked example
That second number is what a mortgage lender will focus on.
Front-end vs. back-end DTI
Mortgage lenders often look at two versions:
- Front-end DTI (the housing ratio): just your housing payment divided by gross income. In Maya's example, $1,700 ÷ $6,000 = 28.3%.
- Back-end DTI: all debt payments, including housing, divided by gross income — 42.5% for Maya.
When people simply say "DTI," they usually mean the back-end number.
What's a good DTI?
There's no single cutoff — each lender and loan program sets its own limits, and a strong credit score or large savings cushion can offset a higher ratio. As a general guide:
| Back-end DTI | How lenders tend to see it |
|---|---|
| 35% or less | Comfortable. You likely have room in your budget. |
| 36% to 43% | Manageable, but lenders may look more closely. |
| 44% to 49% | Getting stretched. Approval may depend on other strengths. |
| 50% or more | Many lenders will decline, and your budget is likely tight. |
A longstanding rule of thumb in mortgage lending is the 28/36 rule: keep housing costs at or below 28% of gross income and total debt payments at or below 36%. Many mortgage programs allow higher ratios than that, but meeting it gives you breathing room.
How to lower your DTI
You can move the ratio from either side: reduce the debt payments or increase the income.
Reduce monthly debt payments
- Pay off small balances completely. Eliminating a $90 monthly payment on a nearly-finished loan cuts DTI immediately — often more effectively than spreading the same money across several debts.
- Pay down credit cards. Lower balances mean lower minimum payments, and they help your credit score at the same time.
- Refinance or consolidate high-rate debt into a lower payment — but be careful not to extend terms so far that you pay much more interest over time.
- Avoid new debt in the months before a big application. A new car loan right before a mortgage application can change the math entirely.
Increase verifiable income
- Include all income you can document, such as a side business with tax returns behind it.
- Consider applying with a co-borrower whose income will also count — remembering that they share responsibility for the debt.
Or borrow less
For a mortgage, a larger down payment or a less expensive home lowers the housing payment directly.
The bottom line
DTI is a quick measure of how much of your income is already committed to debt. Calculate it before you apply for any major loan, aim for 36% or lower if you can, and remember that the number lenders will accept is a ceiling — not a target. For the next step in a home purchase, read our guide to how mortgages work.
Quick answers
Frequently asked questions
Does DTI affect my credit score?
No. Credit scores don't include your income, so DTI isn't part of the calculation. But lenders use DTI alongside your score when deciding whether to approve you.
Is DTI based on gross or net income?
Gross income — what you earn before taxes and deductions. That's why DTI can look better on paper than your budget feels in real life.
Does rent count in my DTI?
For most loan applications, current rent isn't counted as a debt. For a mortgage application, the new housing payment you're applying for is counted instead.