What Is a Good Debt-to-Income Ratio for a Mortgage?

How debt-to-income ratio is calculated

Your DTI ratio is calculated by adding up all your monthly debt payments (the money you have borrowed, not regular monthly bills) and dividing that by your gross monthly income, which is your paycheck before taxes are taken out.

If you’re not sure which bills count toward your DTI ratio calculation, this table will help you know what and what not to include.

Knowing your DTI ratio before talking with a mortgage lender is best since you will have to work on your number if your ratio is over 43%.

Note that while the Consumer Financial Protection Bureau (CFPB) says your DTI ratio does not include your rent payment, some mortgage lenders use it for their calculations. Also, for credit card debt, you should include your required minimum monthly payment rather than your most recent or average payment amount.

DTI ratio example

Let’s say you have a gross income of $5,000 per month. Your current monthly debt obligations are $1,000, which includes your student loan, car loan and some credit card debt. Your rent costs $2,000 per month.

To calculate your DTI, add your debt and rent together to get $3,000. Then divide $3,000 by $5,000, which equals .60 or 60%. In this scenario, your DTI is too high, and you’ll need to either decrease your debt responsibility or increase your income if you hope to qualify for a mortgage.

» MORE: How much house can I afford?

Impact of debt-to-income ratio on mortgage interest rates and loan terms

While you may get approved for a mortgage if your debt-to-income ratio is on the higher end, a lower DTI ratio can help you secure better loan terms. You may qualify for a higher loan amount and lower interest rates than if you had a high DTI ratio, for example.

A lower interest rate can help you save money over the life of your mortgage, so try to have as low a DTI ratio as possible before applying for a home loan.

What is a good debt-to-income ratio?

The CFPB recommends having a DTI of 36% or less, but says that some lenders will accept DTIs up to 43%.

Debt-to-income ratio = total monthly debt payments/gross monthly income.

While you should aim to have as low a DTI ratio as possible, a higher DTI ratio isn’t necessarily grounds for an automatic mortgage loan denial. If your DTI is higher, you still might be approved for a loan if you apply with excellent credit and a higher down payment.

Front-end vs. back-end DTI

The main difference between front-end and back-end DTI ratio is the inclusion of other debts. Both ratios are important for lenders to determine a borrower's overall financial health and repayment capacity. Here’s what they include:

• Front-end DTI only considers housing-related expenses, including rent or mortgage principal and interest payments, property taxes, homeowners insurance and any homeowners association (HOA) fees
• Back-end DTI is also known as the total DTI ratio. It takes into account all of the borrower's monthly debt obligations, including housing expenses as well as student loans, car loans and other debts

How to improve your debt-to-income ratio

Fortunately, there are multiple things you can do to try to lower your DTI ratio:

1. Consolidate your loans: Consolidating all your debts with a debt consolidation loan from a single lender might lower your monthly debt payment, which in turn lowers your DTI ratio. If you have federal student loan debt, you should research special financing options for these loans rather than refinancing or consolidating them with a private lender.
2. Pay off a loan or debt: Get rid of debt that has the highest monthly payment versus the biggest debt overall, since DTI ratio focuses on monthly debt responsibilities and not on your overall debt load.
3. Increase your income: The only two numbers that matter for your DTI ratio are your debts and your income. If you can’t budge on your debt, the next thing to look at is your income. Are you due for a promotion? Is there any extra work you can take on with your current job to increase your pay?
4. Get a co-signer: If your DTI ratio isn’t going to improve anytime soon, one option is to find a co-signer with low debt who is willing to guarantee the loan.

» MORE: 9 mortgage questions to ask your lender

Debt-to-income ratio requirements for loan types

Some mortgage types offer more flexible DTI ratio requirements than conventional mortgages.

Here are the max recommended DTI ratio requirements for each loan type, but remember, lenders have the final say on what is accepted.

• Conventional loan: Recommended 28% for front-end; 36% but can go up to 50% for back-end
• FHA loan: Recommended 31% for front-end; 43% but can go up to 57% for back-end
• VA loan: No set limits; 41% recommended for back-end
• USDA loan: Recommended 29% for front-end; 41% but can go up to 44% for back-end
• Jumbo loan: Recommended 33% for front-end; 43% but can go up to 45% for back-end

Bottom line

Debt-to-income ratio, or DTI ratio, is an important calculation lenders look at during the mortgage application process. Most lenders prefer mortgage applicants who have a DTI ratio of 43% or less.

However, this doesn’t necessarily mean you can’t buy a house with a higher DTI ratio; requirements vary by lender, the type of loan and the size of the loan. You might still qualify if you have a strong credit score and are able to make a large down payment. Otherwise, there are steps you can take to lower your DTI ratio before filling out a mortgage application.