How to Calculate Your Debt-to-Income Ratio
Your debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes toward monthly debt payments. Lenders use DTI as a key factor in mortgage approval, personal loan decisions, and credit assessments. According to the Federal Reserve, the average American household spends about 11.3% of disposable income on debt payments, while total household debt reached $18.8 trillion in 2025. Most mortgage lenders require a DTI of 43% or lower for conventional loan approval.
Quick Answer
- *DTI Formula: Total monthly debt payments ÷ Gross monthly income × 100.
- *According to the Federal Reserve, the average debt service ratio is 11.3% of disposable personal income (Q3 2025).
- *According to ConsumerAffairs, total U.S. household debt is $18.8 trillion, averaging $105,056 per household.
- *Most conventional mortgage lenders require a back-end DTI of 43% or lower; FHA loans may allow up to 50%.
The DTI Formula
DTI = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100
Gross monthly income is your pre-tax income from all sources: salary, wages, bonuses, commissions, rental income, alimony, and investment income. Monthly debt payments include all recurring debt obligations.
What Counts as “Debt” in DTI?
| Included in DTI | NOT Included in DTI |
|---|---|
| Mortgage / rent payment | Utilities (electric, gas, water) |
| Auto loan payments | Groceries and food |
| Student loan payments | Cell phone bill |
| Credit card minimum payments | Internet / cable |
| Personal loan payments | Health / auto / life insurance |
| Child support / alimony | Subscriptions (Netflix, gym) |
| Home equity loan / HELOC | Transportation costs (gas, parking) |
| Co-signed loan payments | 401(k) / IRA contributions |
Front-End vs Back-End DTI
Mortgage lenders evaluate two DTI ratios:
| Ratio | Also Called | Includes | Ideal Target |
|---|---|---|---|
| Front-End DTI | Housing ratio | Mortgage PITI only (principal, interest, taxes, insurance) | ≤ 28% |
| Back-End DTI | Total DTI | All monthly debt payments including housing | ≤ 36–43% |
The traditional “28/36 rule” states that housing costs should not exceed 28% of gross income and total debt should not exceed 36%. However, many lenders approve loans at higher DTIs, especially with strong compensating factors like a high credit score or large down payment.
DTI Ranges: What Lenders Think
| DTI Range | Assessment | Loan Impact |
|---|---|---|
| Under 28% | Excellent | Best rates, easiest approval |
| 28–35% | Good | Strong approval chances |
| 36–43% | Acceptable | May qualify with good credit |
| 44–50% | High | Limited options; FHA may work |
| Over 50% | Very high | Difficult to qualify for most loans |
How to Calculate Your DTI: Step-by-Step
Step 1: Add Up All Monthly Debt Payments
- Mortgage / rent: $1,500
- Car loan: $350
- Student loans: $300
- Credit card minimums: $150
- Personal loan: $100
- Total monthly debt: $2,400
Step 2: Determine Gross Monthly Income
- Salary: $6,250 ($75,000/year)
- Side income: $500
- Total gross monthly income: $6,750
Step 3: Divide and Multiply
DTI = $2,400 ÷ $6,750 × 100 = 35.6%
This DTI falls in the “good” range and would qualify for most conventional mortgages.
How to Lower Your Debt-to-Income Ratio
There are two levers: reduce debt payments or increase income.
Reduce Debt Payments
- Pay off credit cards: Eliminating a $150/month minimum payment drops DTI by 2.2% on a $6,750 income.
- Pay off a car loan: Eliminating a $350/month payment drops DTI by 5.2%.
- Refinance student loans: Extending the term lowers the monthly payment (though increases total interest).
- Consolidate debt: Combining multiple debts into one lower-payment loan can reduce total monthly obligations.
- Avoid new debt: Do not open new credit cards or take on new loans before applying for a mortgage.
Increase Income
- Negotiate a raise: A $5,000 annual raise adds $417/month to gross income.
- Start a side business: Lenders count documented freelance or business income (typically need 2 years of history).
- Add a co-borrower: A spouse or partner’s income is included in the DTI calculation for joint applications.
DTI for Different Loan Types
| Loan Type | Max Front-End DTI | Max Back-End DTI |
|---|---|---|
| Conventional | 28% | 43–45% |
| FHA | 31% | 43–50% |
| VA | No strict limit | 41% guideline (flexible) |
| USDA | 29% | 41% |
| Jumbo | Varies | 36–43% |
See how much house you can afford based on your DTI
Use our free Home Affordability Calculator →Also useful: Mortgage Calculator · Debt Payoff Calculator
Frequently Asked Questions
What is a good debt-to-income ratio?
A DTI of 36% or lower is considered good. Under 28% is excellent. For mortgage qualification, most conventional lenders allow up to 43%, while FHA loans may accept up to 50% with compensating factors like a high credit score.
How do I calculate my debt-to-income ratio?
Add all monthly debt payments (mortgage, car loan, student loans, credit card minimums, personal loans, child support) and divide by your gross monthly income. Multiply by 100. Example: $2,000 in debt ÷ $6,000 income = 33.3% DTI.
What counts as debt for DTI calculation?
DTI includes mortgage/rent, auto loans, student loans, credit card minimums, personal loans, child support, and alimony. It does NOT include utilities, insurance premiums, groceries, phone bills, or subscriptions.
How can I lower my debt-to-income ratio?
Either reduce debt or increase income. Pay off credit cards, pay off a car loan, refinance to lower payments, or consolidate debt. On the income side, negotiate a raise, add freelance income, or include a co-borrower on the mortgage application.
What is the difference between front-end and back-end DTI?
Front-end DTI (housing ratio) includes only housing costs (PITI). Back-end DTI includes all monthly debt obligations. Lenders typically want front-end DTI at or below 28% and back-end DTI at or below 36–43%.