Debt-to-Income Ratio (DTI)
The share of your gross monthly income that goes to debt payments — a key test lenders apply when sizing a mortgage.
What Debt-to-Income Ratio (DTI) means
Debt-to-income ratio divides your total monthly debt payments by your gross monthly income. Lenders use it alongside your credit score to judge whether you can absorb a new payment.
Mortgage underwriters look at two versions. The front-end ratio counts only housing costs — principal, interest, taxes, and insurance. The back-end ratio adds every other recurring obligation: car loans, student loans, credit card minimums, child support.
Conventional loans commonly cap the back-end ratio around 43%, with exceptions up to about 50% for strong applicants. Many lenders prefer to stay under 36%.
Because the calculation uses gross rather than take-home pay, a ratio that satisfies a lender can still feel tight in practice once taxes and retirement contributions come out.
Example
In practice: Gross income of $6,000 a month with $600 in car and student loan payments and a proposed $1,500 mortgage payment gives a back-end DTI of 35%.
Related terms
Gross Income
Your total pay before any taxes, benefits, or contributions are deducted — the figure lenders and tax rules start from.
Credit Score
A three-digit number, typically 300 to 850, that lenders use to estimate how likely you are to repay borrowed money.
Underwriting
The process a lender or insurer uses to verify your finances and decide whether to approve you, and on what terms.
Preapproval
A lender's conditional commitment to a loan amount after reviewing your finances — stronger than a prequalification, short of an approval.
PMI (Private Mortgage Insurance)
Insurance that protects the lender when you put down less than 20%, added to your payment until you build enough equity.
Escrow
Money held by a neutral third party — either during a home purchase, or by your lender to pay property taxes and insurance.
Run the numbers
Debt-to-Income Ratio Calculator
Calculate your front-end and back-end DTI ratios to see how lenders view your debt load.
Mortgage Calculator
Estimate your monthly mortgage payment, total interest cost, and full amortization schedule.
Rent vs. Buy Calculator
Compare the long-run cost of renting against buying — including equity, appreciation, and the opportunity cost of your down payment — and find your break-even year.
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