DTI and how much home you can afford

What DTI actually is

DTI stands for debt-to-income ratio. It’s the single most important number in mortgage qualification. The formula:

"Gross" means before taxes. "Monthly debt payments" includes anything with a recurring payment that shows up on your credit report — minimum credit card payments, auto loans, student loans, alimony, child support, and the proposed new mortgage payment. Things like phone bills, utilities, gym memberships, and groceries are not counted.

Front-end vs back-end DTI

Mortgage lenders calculate two DTI numbers — front-end and back-end — and both have to fit within agency guidelines.

• Front-end DTI (housing ratio)

  Just the proposed monthly housing payment (PITI + MI + HOA) divided by your gross monthly income. Typically capped around 28–31% as a guideline, though it’s less strictly enforced today.

• Back-end DTI (total debt ratio)

  Housing payment plus all other monthly debts, divided by gross monthly income. This is the headline number lenders quote. Caps depend on loan type.

DTI caps by loan type

• Conventional: Generally up to 43–45% back-end. With strong compensating factors (high credit score, big reserves), some loans go to 50%.
• FHA: Up to ~50–57% back-end with compensating factors. FHA is the most generous on DTI.
• VA: Officially no DTI cap, but most lenders cap around 41–50%. VA also uses a residual income test alongside DTI — they want to see X dollars left in your pocket each month after debts and housing.
• USDA: 41% back-end is the standard, with up to ~46% with compensating factors.
• Jumbo: Tighter — typically 43% maximum, often 38% for best pricing.

How to actually calculate your DTI

Walk through this with real numbers. Imagine you make $96,000/year gross. That’s $8,000 gross/month. Your monthly debts:

• Auto loan: $475
• Student loans: $290
• Credit card minimums: $85
• Proposed mortgage payment (PITI + PMI): $2,650 on the home you’re looking at

Total: $3,500/month in payments. DTI = $3,500 ÷ $8,000 = 43.75%. That’s right at the edge of Conventional guidelines and comfortably inside FHA. Front-end is just the $2,650 housing piece divided by $8,000 = 33%.

Income that counts (and what doesn’t)

Lenders are picky about which income they’ll use. Generally:

• W-2 base salary: Used at face value. They look at your most recent pay stubs to confirm year-to-date.
• Bonus, commission, overtime: Averaged over the last 24 months, and they want to see at least 2 years of receiving it.
• Self-employed / 1099: Two years of tax returns averaged. They use your net business income (after deductions), which is often much lower than gross revenue.
• Rental income: Counted at 75% of gross rents (lenders haircut for vacancy/repairs). For new rentals, they need a lease in hand.
• Alimony / child support: Counted if you can document a 6–12 month receipt history and there’s 3+ years of continuance left on the order.
• Side gigs: Generally need 2 years of history. If you started DoorDashing 6 months ago, that income won’t count.

How to lower your DTI fast

DTI is a fraction. You can win by raising the top number (income) or lowering the bottom number (debt). Lowering debt is usually faster and within your control:

1. Pay off small installment loans. Got a $4,500 balance on a 36-month auto loan? Wiping it out drops the entire $185 monthly payment from your DTI calculation.
2. Pay down credit cards under 10% utilization. Lenders use the minimum payment from your most recent statement. Pay it almost to zero before the statement closes and the minimum drops to a tiny number.
3. Don’t take on a new car payment in the months before applying. A $500/mo auto loan can wipe out $80,000+ of purchase power on a typical mortgage scenario.
4. Co-borrower. Adding a co-borrower with stable income can dramatically lower DTI even if their income is modest. (They go on the loan and the title.)
5. Income documentation cleanup. If you’ve had a recent raise, get an updated paystub or offer letter — lenders can often use the new salary instead of the year-to-date average.

Front-end DTI: the 28% rule

You may have heard "your house payment shouldn’t be more than 28% of gross income." That’s the classic front-end rule of thumb. It’s a sound budgeting target but it’s not what lenders strictly enforce anymore — they look more at back-end DTI and your residual income.

That said, the 28% target is good budgeting. If your housing payment eats more than 35% of gross income, you’ll feel it in your ability to save and absorb life’s curveballs.

Common questions