When I applied for my mortgage, I was confused about why my debt-to-income ratio kept coming up. My credit score was 760. My down payment was 15%. I had steady income and money in the bank. But the loan officer kept circling back to DTI. Turns out, it's arguably the most important number lenders look at after your credit score -- and unlike your score, most people have never even calculated theirs.
The math is simple: take all your monthly debt payments, divide by your gross monthly income (that's before taxes). So if you earn $7,000/month gross and your debts total $2,100 (mortgage, car, student loans, credit card minimums), your DTI is 30%. That's considered pretty good. Above 43%? Most conventional mortgage lenders won't touch you. Above 50%? Almost nobody will. The wild thing is, adding a single $300/month car payment can push you from 'approved' to 'denied' on a mortgage application.
There are actually two types of DTI. Front-end (or housing) ratio only includes your housing costs -- mortgage payment, property taxes, insurance, HOA fees. Back-end ratio includes everything: housing plus car loans, student loans, credit card minimums, personal loans, child support, alimony -- all of it. For conventional mortgages, lenders generally want front-end under 28% and back-end under 36-43%. FHA is a bit more lenient, going up to 43% or even 57% with strong compensating factors.
Here's a scenario I see constantly: someone makes good money, has decent credit, but can't get a mortgage because their car payment, student loans, and credit card minimums push their DTI over the threshold. It's frustrating because they feel like they can afford the house. And honestly, maybe they can. But lenders are playing a numbers game, and DTI is one of their main risk indicators. The good news is that DTI is much faster to improve than a credit score.
Fastest way to lower your DTI? Pay off a small recurring debt. If you have a credit card with a $75 minimum payment and a $1,200 balance, paying it off eliminates that $75 from your DTI calculation entirely. On a $7,000 gross income, that's a 1% DTI improvement. Sounds small, but I've seen 1-2% make the difference between approval and denial. Look for debts that are close to being paid off -- maybe a car with 4 payments left, or a store card with a small balance.
What most people don't realize: you can also improve DTI by increasing income, not just decreasing debt. A raise, a side gig, or even documenting a consistent income source you've had for 2+ years (rental income, freelance work) can all boost the denominator in that calculation. One person I know started a tutoring side business specifically to improve her DTI ahead of a mortgage application. She earned $800/month for 18 months, documented it on her taxes, and it made the difference.
Avoid taking on ANY new debt for 3-6 months before a major loan application. No new car, no financing furniture, no opening credit cards -- nothing that adds a new monthly payment. I've seen people get pre-approved for a mortgage, then go finance a $40,000 truck, and lose their mortgage approval. The lender checks your credit again right before closing, and that new payment destroyed their DTI.
Keep tabs on your DTI regularly, not just when you're about to apply for something. Most budgeting apps will calculate it if you link your accounts. As a general financial health target, aim for a DTI under 30%. You don't need to be there to survive, but being under 30% means you have real financial flexibility -- room to save, invest, handle surprises, and qualify for good lending terms when you need them.
