What debt-to-income ratio do you need for a mortgage?

Key takeaways

Your debt-to-income ratio (DTI) helps lenders determine if you can afford to take on additional debt, such as a mortgage loan.
As a general guideline, a housing expense ratio of 28% or less and a total debt-to-income (DTI) ratio of 36% or less have historically been viewed as indicators of a strong mortgage profile.
If your DTI is too high, you may not be approved for a loan, or you may not receive the best interest rates.
FHA loans may allow a DTI up to 43% — and in some cases higher — making them a common option for first-time homebuyers.
You may lower your DTI by paying off existing debt, increasing your income or purchasing a lower-priced home.

As a general guideline, a housing expense ratio of 28% or less and a total debt-to-income (DTI) ratio of 36% or less have historically been viewed as indicators of a strong mortgage profile.

While some conventional mortgage programs may allow DTIs above 43%, qualification depends on factors such as credit score, assets, reserves, loan-to-value ratio, and overall underwriting findings. Lower DTIs generally improve a borrower's likelihood of approval and financial flexibility.

What is a debt-to-income ratio?

Debt-to-income ratio (DTI) compares your monthly debt payments to your income. Mortgage lenders use this ratio as one of several factors to evaluate your ability to manage a new mortgage payment.

When you apply for a mortgage, a lender may ask you to list your current debt and income on the application. The lender will use those amounts to calculate your DTI. This ratio helps determine if you can handle the anticipated mortgage payment while still keeping up with other monthly payments.

While DTI is an important qualification factor, lenders also consider other aspects of your financial profile, such as credit history, assets, employment stability, and available reserves. DTI may also be considered when applying for other forms of credit, including auto loans, credit cards, and personal loans.

Why is DTI important for mortgage approval?

Lenders take your debt-to-income ratio into account when deciding if you can afford to purchase a home. If your DTI exceeds their preset guidelines, you may not be approved for a mortgage. Getting preapproved for a mortgage can help you set a homebuying budget and ensure you feel comfortable when making an offer to a seller.

Leverage your existing banking relationships when seeking a new loan. If you have a savings or checking account, stop by your local branch and ask about mortgage programs for existing bank customers.

How to calculate your debt-to-income ratio for a mortgage

Understanding your debt-to-income (DTI) ratio before applying for a mortgage can help you assess your overall financial position. Lenders typically evaluate two DTI measurements when reviewing a mortgage application: the housing-to-income ratio (front-end DTI) and the total debt-to-income ratio (back-end DTI):

The housing to income ratio (front-end DTI) equals the sum of your monthly housing payment, divided by current income.
Total Debt Ratio (back end DTI) consists of your monthly housing payment plus all other monthly debt, such as your car payment or credit card balance, divided by your gross monthly income.

Step 1: List your monthly debt payments

Make a list of every outstanding loan and the amount you must pay each month. Student loans, car loans and credit cards all count as debt (even if you pay the credit card full balance each month). You may notice slight variations between different lenders' calculations of DTI, but generally, these amounts are considered debt:

Monthly housing costs, including a mortgage, insurance, homeowners' association fees and property taxes
Rent payments
Home equity loans or lines of credit
Student loans
Credit card balances
Buy now, pay later loans
Auto loans
Personal loans or lines of credit
Child support
Alimony

You don't need to include amounts such as:

Utility payments
Household expenses such as groceries, gas and entertainment
Health or car insurance

Before calculating your debt-to-income (DTI) ratio, consider obtaining a copy of your credit report to identify any outstanding obligations that may impact your mortgage qualification. Debts for which you are a co-borrower or co-signer may be included in your DTI calculation, even if another party is responsible for making the payments.

Step 2: Calculate your gross monthly income

Use your gross monthly income — your total income before taxes and other deductions — when calculating your debt-to-income ratio.

Step 3: Divide your debt payments by your income

Divide your monthly debt payments (step 1) by your monthly gross income (step 2). To calculate your front-end DTI, use only your monthly housing payment amounts. For a back-end DTI, include all types of debt. Lenders may also use your new mortgage payment in these calculations to make sure you meet their approval guidelines.

What is a good debt-to-income ratio for a mortgage?

Ideally, your front-end DTI calculation should not exceed 28% when applying for a new loan, such as a mortgage.

You should strive to keep your back-end DTI ratio at or below 36%.

Staying within these ranges demonstrates to the lender that you are well equipped to meet your ongoing financial obligations while still leaving room in your budget for living expenses and unexpected events. If you're applying for something new such as a car loan or a credit card, it helps to understand the lender's ideal debt-to-income ratio.

While you may be approved for a mortgage or other type of loan with a back-end DTI higher than 36%, the lender may not offer you the best interest rates and terms. First-time buyers or others who don't meet the 36% target may want to ask their lender about government-backed mortgages, such as an FHA loan, with higher DTI thresholds.

How to lower your debt-to-income ratio

If your DTI exceeds the lender's guidelines, you can take steps to bring the percentage down to an acceptable range. You can lower your debt-to-income ratio in three ways: increase your income, pay down your debt or consider purchasing a less expensive home with a lower mortgage payment.

Ways to pay down your debt:

Pay down high-interest debt with the waterfall method.
Look into refinancing student loans.
Decrease your monthly savings and prioritize debt payments for a short time.
Cut back on discretionary expenses, such as restaurant meals, and use the money saved to pay off credit cards or other loans.

Additionally, consider the timing of other large purchases, such as a new car, that may affect your DTI. If purchasing a home is important to you within the next year, you may want to delay or skip other large purchases that will increase your DTI.

Frequently asked questions about DTI and mortgages

No, DTI and credit scores are separate calculations that lenders use to evaluate if you can pay back loans. However, both DTI and credit scores use information found on your credit report. DTI factors income into the calculation, but your credit score does not. Both credit scores and DTI may improve as you pay off existing debt shown on your credit reports, such as credit card balances or auto loans.

If you're currently leasing an apartment, your monthly rent is typically included in your debt-to-income ratio. Your housing payment is considered a necessary expense, even if you rent. If you've signed a lease for an apartment or condo, you're committed to paying the rent each month, just like your monthly mortgage or student loan payments.

Backed by the federal government, Federal Housing Administration (FHA) loans offer financing assistance to homebuyers with lower credit scores or smaller down payments. Most borrowers need a DTI of 43% or less to qualify for an FHA loan. In some extenuating circumstances, such as a buyer with a large down payment or significant income, the DTI ratio for an approved FHA loan may be higher.

To calculate DTI, lenders use gross income (income before taxes and any additional deductions).

When calculating monthly debt for the DTI, include only the minimum balance for credit cards, even if you pay the total balance each month.

Are you ready to buy your first home?

Your debt-to-income ratio is one of many factors considered during the mortgage application process. Before making an offer on a home, consider your existing monthly obligations, available savings, and both short- and long-term financial goals.

Mortgage programs vary, and lenders may have different approval requirements. Even if you qualify for a mortgage with a higher debt-to-income (DTI) ratio, it's important to consider your personal comfort level with the monthly payment. Consider how a larger housing expense may affect your ability to meet other financial obligations and achieve your short- and long-term financial goals.

Before you start house hunting, consult a loan officer to discuss which type of mortgage may work best for you. Many banks offer specialized programs for first-time buyers.

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