800 Credit Score

Debt-to-Income Ratio: What It Is and Why Lenders Care

Your DTI ratio determines if you qualify for a mortgage, car loan, or credit card. Learn how to calculate yours and lower it fast.

What Is Debt-to-Income Ratio?

Your debt-to-income ratio (DTI) is the percentage of your monthly gross income that goes toward debt payments. It tells lenders how much room you have to take on new debt.

DTI = Monthly Debt Payments / Monthly Gross Income × 100

How to Calculate Yours

Monthly debt payments include:

  • Mortgage or rent
  • Car payments
  • Student loans
  • Credit card minimums
  • Personal loans
  • Child support/alimony

Monthly debt does NOT include:

  • Utilities, groceries, insurance
  • Phone, internet, subscriptions
  • Taxes (unless owed to IRS with payment plan)

Example

  • Monthly income: $6,000
  • Mortgage: $1,500
  • Car payment: $400
  • Student loan: $300
  • Credit card minimums: $200
  • DTI = $2,400 / $6,000 = 40%

What Lenders Want

| DTI Range | Rating | Loan Eligibility | |-----------|--------|-----------------| | Under 20% | Excellent | Best rates, all loan types | | 20-35% | Good | Most loans approved | | 36-43% | Acceptable | May qualify with strong credit | | 43-50% | High | Limited options, FHA possible | | Over 50% | Too high | Most lenders will decline |

By Loan Type

  • Conventional mortgage: Max 43-45% DTI
  • FHA mortgage: Max 50% DTI (with compensating factors)
  • VA loan: No official DTI limit, but 41% is the benchmark

How to Lower Your DTI

Quick methods:

  1. Pay off smallest debts first — Eliminating a $200/month payment drops your DTI immediately
  2. Increase income — Side gig income counts if documented
  3. Refinance at lower payments — Extending loan terms lowers monthly obligations

Medium-term:

  1. Avoid new debt — Don't finance anything before applying for a mortgage
  2. Pay down credit card balances — Lower balances = lower minimums
  3. Consolidate high-interest debt — One lower payment instead of many

DTI vs. Credit Score

Your DTI and credit score are different things:

  • Credit score: Based on payment history, utilization, account age
  • DTI: Based on income vs. debt payments

You can have an 800 credit score and still be denied a mortgage if your DTI is too high. Lenders look at both.

← Back to comparisons