What Is Debt to Income Ratio?
Your debt to income ratio (DTI) is a percentage that compares your total monthly debt payments to your gross monthly income (before taxes). Lenders use it as one of the most important factors when evaluating loan applications—including mortgages, car loans, and personal loans.
The formula is simple:
DTI = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100
For example: if you earn $6,000 per month before taxes and your monthly debt payments total $1,800 (mortgage $1,200, car loan $300, student loan $300), your DTI is:
$1,800 ÷ $6,000 = 0.30 × 100 = 30%
What Counts as Debt in Your DTI?
Lenders typically include the following in your monthly debt payments:
- Mortgage payment or rent (for some loan types)
- Car loan payments
- Student loan payments (minimum required amount)
- Credit card minimum payments
- Personal loan payments
- Child support or alimony obligations
What lenders generally do not include in DTI calculations:
- Utility bills (electric, gas, water)
- Groceries and food expenses
- Health insurance premiums
- Cell phone bills
- Streaming subscriptions
Note that lenders use your minimum required payments for revolving debts like credit cards, not your actual payment amount.
DTI Ranges and What They Mean
| DTI Range | Assessment | Loan Eligibility |
|---|---|---|
| Below 36% | Excellent | Qualifies for most loans at best rates |
| 36–43% | Good | Qualifies for most conventional mortgages |
| 43–50% | Borderline | May qualify with compensating factors |
| 50%+ | High risk | Difficult to qualify for most loans |
The Consumer Financial Protection Bureau (CFPB) considers 43% the maximum DTI for a qualified mortgage. Fannie Mae allows up to 50% DTI for conventional loans with compensating factors (like a large down payment or excellent credit score). FHA loans may allow up to 57% in some cases.
Front-End vs. Back-End DTI
Mortgage lenders often look at two versions of DTI:
Front-end DTI (housing ratio): Only includes housing costs—mortgage principal and interest, property taxes, homeowners insurance, and HOA fees. Most lenders want this below 28%.
Back-end DTI (total DTI): Includes all monthly debt payments plus housing. This is the number most commonly referenced as your DTI. The standard guideline is below 36%, though lenders accept higher ratios depending on the loan type.
If you're applying for a mortgage, knowing both numbers matters. A front-end ratio of 25% with a back-end ratio of 48% might still concern lenders even if your total DTI seems manageable.
How to Lower Your Debt to Income Ratio
There are only two ways to improve your DTI: reduce your debt payments or increase your income. Here are the most effective approaches:
- Pay down debt aggressively: Focus on eliminating debts entirely to remove the monthly payment from your DTI calculation. Paying a $300/month car loan down to zero drops your DTI by 5 percentage points if you earn $6,000/month.
- Avoid new debt before applying for a loan: Every new credit account adds to your monthly obligations. Don't buy a car or open new credit cards in the months before applying for a mortgage.
- Increase your income: Side income from freelancing, a part-time job, or rental property can increase your denominator. Some lenders will count documented side income if you can show a 2-year history.
- Pay off revolving balances: Paying a credit card from $5,000 to $0 eliminates its minimum payment from your DTI, even though the monthly payment may have only been $100–$150.
- Consider income-driven repayment for student loans: If federal student loan payments are high, switching to an IDR plan can reduce the required monthly payment counted in your DTI.
Frequently Asked Questions
What is a good debt to income ratio?
A DTI below 36% is considered good by most lenders. Below 28% is excellent and will qualify you for the best rates. Above 43% makes it difficult to qualify for conventional mortgages.
Does DTI affect credit score?
No. DTI is not a factor in your credit score calculation. However, lenders use it alongside your credit score to make lending decisions, so a high DTI can result in loan denial even with a good credit score.
Is rent included in DTI?
For most loan applications, your current rent is included in back-end DTI. For mortgage applications, the proposed new mortgage payment replaces your current rent payment in the calculation.