Debt-to-Income Ratio

You're applying for a mortgage, the loan officer asked for your DTI, and you want to know what number they're going to see before you submit anything. Lenders calculate this very specifically — gross monthly income on the bottom, total monthly debt obligations on top — and they include some debts (housing, car, student loans, credit card minimums) but not others (utilities, food, gas).

The rule of thumb most conventional lenders use is 43% as the upper limit, though FHA goes higher and qualifying jumbo loans go lower. Below 36% is comfortable. Above 43% generally means you'll need compensating factors — strong credit, big down payment, cash reserves — or you'll be looking at a smaller loan than you wanted. Plug in the numbers, see where you fall, and adjust before the formal application if you can.

The calculation: total monthly debt payments / gross monthly income. Front-end DTI uses only housing-related costs (proposed mortgage payment including taxes and insurance, plus HOA dues if applicable). Back-end DTI uses housing plus all other recurring debt: auto loans, student loans, credit card minimums, child support, alimony. Income is gross — what's on your offer letter or W-2, before any deductions. Self-employed borrowers use net income from Schedule C, which often hurts their DTI compared to W-2 borrowers earning equivalent gross.

A worked example: you make $8,000 gross per month. Your proposed mortgage (PITI) is $2,400. Auto loan: $450. Student loans: $300. Credit card minimums: $150. Total monthly debt: $3,300. Back-end DTI: 3,300 / 8,000 = 41.25%. That's borderline for conventional — FHA accepts it, conventional may want compensating factors, jumbo lenders generally won't touch it. To get under 36% (the comfortable threshold), you'd need to either earn more, put more down (lowering PITI), or pay off the auto loan before applying.

Where DTI as a metric is incomplete: it treats all debt the same, which it isn't. A 0%-interest auto loan you'll pay off in six months counts the same as a 7% loan with three years remaining. Lenders do their own assessment beyond DTI, including cash reserves and credit history, and a strong overall profile can push approval despite a marginal DTI. DTI also doesn't account for cost of living variation — 43% in a low-cost area leaves more disposable income than 36% in San Francisco. Run the calculation honestly using your real income (not aspirational raises) and your real debts (don't pretend the credit card balance you carry will be paid off any month now). Mortgage approval is one of the few situations where playing optimist hurts you because the lender will pull the actual numbers anyway.