Debt-to-income ratio (DTI) for mortgages

Your debt-to-income ratio (or "DTI") is a number mortgage lenders look at when you are buying or refinancing a house. Lenders use your debt-to-income ratio to help them decide if you qualify for a home loan as well as to determine how much money they might be willing to offer you.

How to calculate debt-to-income ratio

Debt-to-income ratio is calculated using a simple formula. Take the total of your monthly debt payments, divide this total by your monthly income, and express the result as a percentage. Look at these examples:

You should count all debts toward your total monthly debt payments. Include rent and mortgage, credit card, auto loan, student loan, insurance, child support, and alimony payments in your total. Your monthly gross income may include wages earned, plus tips and bonuses if applicable, social security income and pension payments, child support and alimony (if you wish this income to be considered). Once you have these totals, divide your total monthly debt payments by your monthly gross income to calculate your debt-to-income ratio.

What debt-to-income ratio do you need to buy a house?

Lenders often require a maximum debt-to-income ratio between 36% and 43% to approve you for a mortgage to buy a house. Some lenders may accept a debt-to-income ratio of 45% or higher when you are buying a home with a conventional loan, but these higher DTIs usually come with higher credit and income requirements.

Keep in mind that lenders will include the estimated cost of your monthly mortgage payment when they calculate your debt-to-income ratio. This is important to understand because if this estimated payment is higher than your current housing costs, from either your current mortgage payment or your monthly rent, your debt-to-income ratio is likely to increase.

What is a good debt-to-income ratio

Financial professionals often recommend keeping your debt-to-income ratio under 36%. This is the number Fannie Mae uses as a maximum DTI for many of its loans¹. The reason lower debt-to-income ratios are considered good is because they usually indicate you have more money available to deal with unexpected expenses like car repairs, home repairs, and medical bills.

Lenders consider lower debt-to-income ratios good for the same reasons. A low DTI means you can comfortably pay your expected monthly expenses with money left over to cover unexpected bills. As a result, lenders often see borrowers with low DTIs as good customers whose business they try to win with competitive interest rates or better terms. A good debt-to-income ratio may improve your chances of getting approved for a mortgage to buy or refinance a home too.

Debt-to-income ratio and home affordability

Your debt-to-income ratio can have an impact on how much house you can afford to buy because DTI may affect how much money a lender might be willing to let you borrow. If you start with a higher debt-to-income ratio, lenders may be willing to loan you less money than they would if you have a lower DTI. A good way to figure out how your debt to-income ratio might affect the prices of homes you can afford is to get prequalified for a mortgage.

Talk to Freedom Mortgage about buying a home

Freedom Mortgage is committed to fostering homeownership across America. We can help you buy a home with a conventional, VA, FHA, or USDA loan. Visit our Get Started page or call one of Freedom Mortgage's friendly loan advisors at 877-220-5533.

1. Fannie Mae, Debt-to-Income Ratios (06/14/2021) from their "Selling Guide" published June 2, 2021

Last reviewed and updated November 2021 by Freedom Mortgage Corporation.