DTI is the share of your before-tax income that goes to debt payments, and the DTI limit a lender allows sets the most you can spend on a house payment.
What DTI means
DTI stands for debt-to-income ratio. It answers one question: out of every dollar you earn, how many cents already go to debts? If you earn $7,500 a month and pay $3,000 a month in debts, your DTI is 40%.
Lenders look at two versions:
- Front-end ratio (housing ratio): only your new housing payment divided by your income.
- Back-end ratio (total DTI): your new housing payment plus all your other monthly debts, divided by your income. When people say “DTI,” they usually mean this one.
Both use gross income. That is your pay before taxes, health insurance and retirement savings come out, not your take-home pay. For a salary, divide the yearly amount by 12.
What counts as debt, and what usually doesn't
Usually counts
- Your new housing payment: principal and interest, property taxes, homeowners insurance, HOA dues and mortgage insurance
- Car loans and leases
- Student loans
- The minimum payment on each credit card
- Personal loans and other installment loans
- Child support and alimony
- Payments on other properties you own
Usually doesn't count
- Utilities like power, water and internet
- Phone and streaming bills
- Groceries, gas and other living costs
- Car, health and life insurance that is not tied to the loan
- 401(k) and other retirement contributions
- Your current rent, if you are moving out
Lenders mainly use your credit report and court orders to find your debts. A credit card counts at its minimum payment, even if you pay the full balance every month.
How to calculate your DTI, step by step
- Find your gross monthly income. $90,000 a year ÷ 12 = $7,500 a month.
- Add up your monthly debt payments. Car $400 + student loan $150 + credit-card minimums $50 = $600.
- Add the new full housing payment. Say principal, interest, taxes and insurance come to $2,400.
- Divide total debts by income. ($600 + $2,400) ÷ $7,500 = 0.40, so your back-end DTI is 40%.
- Check the housing ratio too. $2,400 ÷ $7,500 = 0.32, so your front-end ratio is 32%.
Where $7,500 of gross income goes at a 45% DTI
- Housing payment $2,775
- Other debts $600
- Remaining $4,125 (taxes, food, savings and everything else)
That “remaining” slice is not spare cash. Income taxes, groceries, gas, utilities and savings all come out of it. A lender's limit is a ceiling, not a budget.
Typical DTI limits by loan type
There is no single DTI cutoff. These are common program guidelines. The real limit for your file depends on your credit, savings, down payment and the lender's automated underwriting system (software that weighs the whole file).
| Loan type | Common DTI guideline |
|---|---|
| Conventional | Often up to about 45% to 50% with automated approval. About 36% is a common baseline when a loan is underwritten by hand. |
| FHA | Commonly about 43% total (about 31% for housing). Higher, sometimes into the mid-50s, with strong compensating factors and automated approval. |
| VA | Commonly 41% as a guideline, plus a residual income test (money left over each month after major expenses). Higher DTI can work when residual income is strong. |
| USDA | Commonly 29% for housing and 41% total. Higher can be possible with automated approval and compensating factors. |
| Non-QM (bank statement and other alternative-income loans) | Varies by lender. Income is documented in other ways, so the limit and the math can differ. |
| DSCR investor loans | Generally do not use your personal DTI. They compare the property's rent with its payment instead. |
“Compensating factors” are strengths that offset a higher DTI, like a strong credit score, several months of savings left after closing, or a new payment close to what you pay in rent today.
From DTI to a loan amount
This is the part most people want: how much can I borrow? You work backward from the DTI limit. Here is a full example with checked math. The 7% rate is an example only, not a quote.
Example: $7,500 a month income, 45% target DTI
| Gross monthly income | $7,500 |
| × 45% target DTI = most you can spend on all debts | $3,375 |
| − Other debts (car $400 + student loan $150 + cards $50) | −$600 |
| = Most you can spend on the full housing payment | $2,775 |
| − Property taxes (example) | −$350 |
| − Homeowners insurance (example) | −$125 |
| − HOA dues | $0 |
| = Left for principal and interest | $2,300 |
| Loan that $2,300 pays off over 30 years at an example 7% | ≈ $345,700 |
| Home price with 10% down ($345,700 ÷ 0.90) | ≈ $384,100 |
How the loan amount is found: loan = payment × [1 − (1 + r)−n] ÷ r, where r is the monthly rate (7% ÷ 12 ≈ 0.005833) and n is the number of payments (360). For these inputs the factor is about 150.31, and $2,300 × 150.31 ≈ $345,700.
With 10% down on a conventional loan, you would usually also pay mortgage insurance. That monthly cost comes out of the same $2,775, so the real loan and price would be a bit lower.
What paying off the car does
Pay off the $400 car loan and your other debts drop to $200. Now $3,375 − $200 = $3,175 can go to housing. Take away the same $475 for taxes and insurance and $2,700 is left for principal and interest. At the same example rate, that supports a loan of about $405,800, roughly $60,100 more, or a price of about $450,900 with 10% down. Removing $400 a month of debt adds about $150 of loan for every $1 of payment.
The front-end check
Some programs also cap the housing ratio. A common older guideline is 28%: $7,500 × 28% = $2,100 for the full housing payment. After the same $475 for taxes and insurance, $1,625 is left for principal and interest, which supports a loan of only about $244,200. In the main example, the $2,775 payment is a 37% front-end ratio. Lenders may use the back-end limit, the front-end limit or both, depending on the program and the automated approval. The lower answer is the one that counts.
What this means for you
Before you shop for homes, add up your debts and divide by your gross monthly income. Then work backward from a DTI you are comfortable with, not just the highest one a lender might allow. Paying down a monthly debt before you apply can raise your loan amount far more than the debt costs to pay off. Use the DTI calculator to test your own numbers.
Mistakes to avoid
- Using take-home pay instead of gross income.
- Forgetting taxes, insurance, HOA dues and mortgage insurance in the housing payment.
- Leaving out credit cards you pay in full. Lenders still count the minimum payment.
- Opening a new car loan or credit card before closing. It can push your DTI over the limit.
- Treating the maximum DTI as your budget. Leave room for savings and life.
Words to know
- DTI
- Front-end ratio
- Back-end ratio
- Gross income
- PITI
- Compensating factors
- Residual income
- Automated underwriting
See the full mortgage glossary →
Questions people ask
What is a good DTI for a mortgage?
Lower is safer. A total DTI of 36% or less is usually comfortable. Many programs allow about 43% to 50%, and some go higher with strong compensating factors and automated approval. The limit for your file depends on the loan type, your credit, your savings and the lender.
Does DTI use my income before or after taxes?
Before taxes. Lenders use gross monthly income, which is your pay before taxes, health insurance and retirement savings come out. If you earn $90,000 a year, your gross monthly income is $7,500.
Do utilities, phone bills and groceries count in DTI?
Usually not. DTI counts debts that show up on your credit report or that you owe by court order, like car loans, student loans, credit-card minimums, personal loans, child support and alimony, plus the new housing payment. Everyday living costs are not part of the ratio, but you still need to budget for them.
Will paying off a debt help me borrow more?
Usually, yes. Every dollar of monthly debt you remove frees a dollar for the housing payment. In this lesson, paying off a $400 car payment raises the example loan by about $60,100 at an example 7% rate. Ask your lender before you pay anything off, because some programs treat debts with only a few payments left differently.
Sources
- Fannie Mae Selling Guide B3-6-02: Debt-to-Income Ratios — how DTI is figured for conventional loans, the 36% manual baseline, up to 45% with compensating factors and up to 50% through automated underwriting.
- HUD Single Family Housing Policy Handbook 4000.1 — FHA rules for counting income and debts, and the housing and total ratio guidelines.
- VA home loans — the VA home loan program, where lenders look at DTI along with residual income.
- USDA Rural Development: Single Family Housing Guaranteed Loan Program — the guaranteed program and its income and repayment rules.
- CFPB Regulation Z §1026.43 — the ability-to-repay rule, which requires lenders to consider debts and DTI or residual income.
Ratios shown are common program guidelines, not promises. Each lender and automated underwriting system decides the limit for your file. The 7% rate in the example is for illustration only, not a quote.
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