Debt-to-income, explained
Your monthly debt payments divided by your gross monthly income. It is the number that caps how much house you can buy, and most people have never worked theirs out.
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The numbers
The numbers
What lenders allow
How lenders assess ratios, explained by the CFPB.
Your debt-to-income ratio is your monthly debt payments divided by your gross monthly income. Lenders check it alongside your credit score and your reserves after closing.
Two things surprise people. Lenders use your income before tax. And they count the minimum payment on each debt, not the balance.
Where a 43 percent ratio goes
On $8,000 gross monthly income, the common qualified mortgage benchmark
Lenders count minimum payments, not balances, and use income before tax.
The calculation
How it is worked out
An example on $8,000 a month gross income.
| Item | Monthly amount | Counts? |
|---|---|---|
| Gross monthly income | $8,000 | The denominator |
| Car loan payment | $450 | Yes |
| Student loan payment | $220 | Yes |
| Credit card minimums | $130 | Yes, the minimum only |
| Proposed housing payment | $2,040 | Yes, including tax and insurance |
| Total debt payments | $2,840 | Divided by income |
| Debt-to-income ratio | 35.5% | Comfortably inside 43% |
Scroll sideways to see all columns.
What counts
Included and excluded
Counted
- Car loans and leases
- Student loan payments
- Credit card minimum payments
- Personal loans
- Child support and alimony paid
- The proposed housing payment including tax and insurance
Not counted
- Utilities, phone and internet
- Groceries and fuel
- Insurance other than homeowners
- Subscriptions
- Taxes withheld from your pay
- Your credit card balances, only the minimums
Improving it
Moving the number
Clear the debt with the biggest minimum payment
Not the biggest balance. A $450 car payment frees more room than a $6,000 card with a $60 minimum payment.
Increase documented income
Bonus and commission usually need two years of history before they count. So this is slower than it sounds.
Do not consolidate right before applying
A new loan means a new account and a new inquiry at the worst moment.
The housing payment includes more than the loan
Property tax, homeowners insurance, PMI or MIP, and any association dues all sit inside the ratio.
Two ratios
Front-end and back-end, and which one matters
Front-end ratio
Your proposed housing payment alone, divided by gross monthly income.
Back-end ratio
The same, plus every other monthly debt payment. When someone says a 43 percent limit, they almost always mean this one.
The 28/36 rule of thumb
28 percent front-end, 36 percent back-end. It is a guideline for comfort, not a lending rule. Real programs allow considerably more.
Where the gap lives
The space between what you can borrow and what you should borrow. Set your own target ratio and compare.
One more thing
Why your ratio can change without you doing anything
A card minimum rises
Minimum payments are usually a percentage of the balance. Let a balance climb and your ratio worsens even though you borrowed nothing new.
Property taxes are reassessed
The housing payment inside your ratio includes tax and insurance. A reassessment on the home you are buying moves the number.
A deferred loan comes due
Student loans in deferment still count on most programs, using either the real payment or a percentage of the balance.
Rates move
Your maximum is calculated at current rates. A higher rate means the same payment supports a smaller loan.
Questions
Common questions
What is a good debt-to-income ratio for a mortgage?
43 percent is the common benchmark for qualified mortgages. Conventional loans can stretch to 45 or 50 percent with strong reserves or a high credit score.
How do you calculate debt-to-income ratio?
Add up your minimum monthly debt payments including the proposed housing payment, then divide by your gross monthly income before tax.
Do lenders count my credit card balance or my payment?
The minimum monthly payment, not the balance. A large balance with a small minimum affects your ratio less than a small balance with a large one.
Does the housing payment count in my DTI?
Yes, and it includes property tax, homeowners insurance and any mortgage insurance, not just principal and interest.
What is not counted in debt-to-income?
Utilities, phone bills, groceries, fuel, subscriptions and taxes withheld from your pay are generally excluded.
Keep reading
Related guides
How to qualify
The four factors lenders weigh together.
Affordability calculator
See what your ratio supports as a price.
Mortgage readiness
Where you stand today, and what to fix.
Independent sources
- Consumer Financial Protection Bureau — how lenders assess debt-to-income
See your real number
Verified income and assets, in about 90 seconds.
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