Debt-to-Income Ratio for a Mortgage: How It Is Calculated

The definition

The CFPB defines your debt-to-income ratio as all your monthly debt payments divided by your gross monthly income. Gross income is generally what you earn before taxes and other deductions.

DTI = total monthly debt payments ÷ gross monthly income × 100%

The CFPB's own example: a $1,500 mortgage payment, a $100 auto loan and $400 of other debts make $2,000 a month. With gross monthly income of $6,000, DTI is 2,000 ÷ 6,000 = 33%.

What counts

For a mortgage application, the new housing payment counts as a debt, including principal, interest, property tax, homeowners insurance, mortgage insurance and HOA dues. Typical other debts include:

• Auto loans and leases
• Student loans
• Minimum payments on credit cards
• Personal loans
• Child support and alimony you pay

Everyday expenses that are not debts, such as utilities, groceries, phone plans and insurance other than homeowners insurance, are not in the ratio. Lenders follow their program's detailed rules, for example on how to count student loans in deferment.

Lenders sometimes quote two ratios. The front-end ratio counts only the housing payment. The back-end ratio counts housing plus all other debts. When people say DTI, they usually mean the back-end ratio.

Published limits

The CFPB notes that limits differ by loan product and lender. For loans sold to Fannie Mae, the Selling Guide (B3-6-02) sets:

Freddie Mac's homebuyer site says that ideally your DTI should be less than 45%. FHA, VA and USDA loans set their own standards.

What happened to the 43% rule

For several years, the CFPB's General Qualified Mortgage definition required DTI of no more than 43%. A final rule issued in December 2020 removed that 43% limit and replaced it with price-based thresholds tied to the loan's APR. You will still see 43% mentioned, and some lenders use it in their own guidelines, but it is no longer a general federal cap for Qualified Mortgages.

DTI is a ceiling, not a budget

A lender's limit tells you the most you might qualify for. It ignores things that matter to your budget: taxes and retirement contributions taken from your paycheck, childcare, commuting, savings goals and home upkeep. Many households look at the payment against their take-home pay as well as their gross income.

How the new payment changes your ratio

The housing payment is usually the biggest debt in the ratio, so small changes to it move DTI a lot. In the example above, a $3,000 housing payment on $8,000 of gross income is 37.5% before any other debts. A home with $100 a month lower property tax, or a quote with a lower PMI premium, reduces DTI by 1.25 percentage points. That is why lenders recompute DTI when the property, rate or insurance changes during an application.

Ways to improve your DTI

• Pay off a small debt with a monthly payment; removing a $300 car payment frees $300 of room.
• Avoid new credit in the months before applying.
• Add a co-borrower, whose income and debts are both counted.
• Lower the housing payment with a larger down payment, a less expensive home, or by comparing taxes and insurance between homes.

This guide is educational. Lenders apply their own and their investors' detailed rules.

Common questions

Do utilities count in DTI?

Generally no. DTI counts debt obligations such as loans, credit card minimums and support payments, not living expenses like utilities, phone or groceries.

Is DTI based on take-home pay?

No. The CFPB defines it using gross monthly income, before taxes and other deductions.

How can I lower my DTI?

Pay down or pay off debts with monthly payments, avoid new debt before applying, add a co-borrower's income, or choose a less expensive home so the new payment is smaller.