Debt-to-Income Ratio Explained Simply

Everyone obsesses over their credit score. But your debt-to-income ratio — DTI — is the number that actually sets your borrowing limit.

Lenders use it to decide whether you can handle the monthly payment. Here's how it works.

What is DTI?

Your monthly debt payments divided by your gross monthly income. That's it.

Formula: (monthly debts ÷ monthly income) × 100 = DTI%

Make $6,000/month and have $1,500 in debt payments? Your DTI is 25%.

Two types lenders look at

• Front-end DTI: Just housing costs (mortgage, taxes, insurance, HOA). Target: under 28%.
• Back-end DTI: All debts including the new mortgage payment. Target: under 36%. Some lenders go to 43-50%.

What counts as debt

• Credit card minimums
• Car loans and leases
• Student loans (lenders use 1% of the balance or the actual payment, even if deferred)
• Personal loans
• Child support and alimony

Things that don't count: utilities, phone bills, Netflix, groceries.

How to improve your DTI

• Pay down credit cards — lowers both the debt and the minimum payment
• Pay off a small loan — removes the monthly payment entirely
• Increase income — side gig, overtime, a raise (need history of receiving it)
• Don't take on new debt — no car financing, no new credit cards before applying

What lenders want to see

• Under 36%: Ideal. Best rates and most options.
• 36-43%: You'll still qualify with most programs.
• 43-50%: Limited options. FHA may work.
• Over 50%: Very hard to qualify. Pay down debt first.