What Is DTI (Debt-to-Income Ratio)?
DTI (debt-to-income ratio) compares your total monthly debt payments to your gross monthly income. Lenders use it to assess your ability to repay a new loan. A lower DTI signals you're less financially stretched and more likely to qualify for better rates.
How to Calculate DTI
Example: You earn $80,000/year ($6,667/month). Monthly debts: mortgage $1,800 + car $400 + student loan $300 = $2,500. DTI = $2,500 ÷ $6,667 = 37.5%.
Lenders calculate two DTI ratios: front-end (housing costs only) and back-end (all debt). The back-end DTI is the stricter, more commonly cited number.
DTI Thresholds by Loan Type
Excellent
Qualifies for most loans at the best rates. Low perceived risk.
Acceptable
Qualifies for most conventional loans; may face higher scrutiny.
Stretched
FHA loans may approve up to 50% with compensating factors. Conventional lenders are cautious.
High Risk
Most lenders will decline. Focus on paying down existing debt before applying.
DTI Examples by Income
| Annual Income | Housing | Other Debt | Back-end DTI |
|---|---|---|---|
| $60.000/yr | $1400/mo | $400/mo | 36% |
| $80.000/yr | $1800/mo | $500/mo | 35% |
| $100.000/yr | $2200/mo | $800/mo | 36% |
| $120.000/yr | $2600/mo | $1000/mo | 36% |