How Do You Calculate Your Debt-to-Income Ratio?
Add up all your monthly debt obligations — mortgage or rent, car loans, student loans, credit card minimums, and any other recurring debt payments. Divide that total by your gross monthly income (before taxes). Multiply by 100 to get a percentage. For example, $2,000 in monthly debt divided by $6,000 gross income equals a 33% DTI.
What Is a Good Debt-to-Income Ratio?
Most lenders prefer a DTI below 36%, with no more than 28% going toward housing. For conventional mortgages, lenders typically cap DTI at 43–45%. FHA loans may allow up to 57% in some cases. A DTI under 20% is considered excellent and gives you maximum borrowing flexibility and is generally associated with the most favorable interest rates.
How Can You Lower Your Debt-to-Income Ratio?
You can reduce DTI by paying down existing debts, avoiding new debt, or increasing your income. Prioritizing high-balance loans shrinks your monthly obligations faster. Side income, raises, or a second job boosts the denominator. Even small improvements matter — dropping DTI from 40% to 35% can qualify you for significantly better loan terms.
Frequently asked questions
Does DTI affect my credit score?
DTI itself does not appear on your credit report and does not directly affect your credit score. However, the underlying debt levels that drive a high DTI — like high credit utilization — can negatively impact your score.
Which debts are included in the DTI calculation?
Lenders include mortgage or rent, car loans, student loans, personal loans, minimum credit card payments, and child support or alimony. Utilities, insurance, groceries, and subscriptions are not counted as debt obligations.
Can I get a mortgage with a high DTI?
It is possible but harder. FHA and VA loans offer more flexibility than conventional loans. Having strong compensating factors — a high credit score, large down payment, or significant cash reserves — can help offset a DTI above the standard threshold.