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What is a good debt-to-income ratio for a mortgage? (2023)

This is how much debt lenders like to see

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One major factor mortgage lenders look for in borrowers is their debt-to-income (DTI) ratio. Lenders want to know what types of debt you have and if you can balance them with a mortgage before approving your mortgage application.

“When it comes to debt-to-income ratio for a mortgage, think of Goldilocks testing bowls of porridge. You want it not too high, not too low, but just right,” said James Allen, founder of the personal finance website Billpin.

“Generally, lenders like to see your DTI below 43%. That means your monthly debts are less than 43% of your monthly income. This shows them you've got enough wiggle room in your budget to comfortably handle a mortgage payment.”

Key insights

  • Your DTI ratio is calculated by dividing your monthly debt payments by your gross monthly income.
  • Do not include your rent, insurance costs or medical debt in your DTI ratio.
  • Your income can include your paycheck, as well as disability, child support and other side income.

How debt-to-income ratio is calculated

Your DTI ratio is calculated by adding up all your monthly debt payments (the money you have borrowed, not regular monthly bills) and dividing that by your gross monthly income — your paycheck before the taxes are taken out.

Not sure which bills count toward your DTI ratio calculation? This table will help you know what and what not to include.

Included in DTI ratioExcluded from DTI ratio
Your current rent or monthly mortgage payment, including taxes and insurance if escrowed Monthly utilities (e.g., electricity, gas, garbage)
Monthly car loan payment Cellphone bill
Monthly minimum credit card payments (if carrying debt) Internet or cable bill
Monthly student loan payment Car insurance premiums
Monthly personal loan payment (including co-signed loans) Health insurance premiums
Monthly child support/alimony payments Medical debt
Monthly timeshare payments Groceries, eating out or entertainment expenses

Knowing your DTI ratio before talking with a mortgage lender is best since you will have to work on your number if your ratio is over 43%.

Note that while the Consumer Financial Protection Bureau (CFPB) says your DTI ratio does not include your rent payment, some mortgage lenders use it for their calculations. Also, for credit card debt, you should include your required minimum monthly payment rather than your most recent or average payment amount.

DTI ratio example

Let’s say you have a gross income of $5,000 per month. Your current monthly debt obligations are $1,000, which includes your student loan, car loan and some credit card debt. Your rent costs $2,000 per month.

To calculate your DTI, add your debt and rent together to get $3,000. Then divide $3,000 by $5,000, which equals .60 or 60%. In this scenario, your DTI is too high, and you will need to either decrease your debt responsibility or increase your income.

» MORE: How much house can I afford?

What is a good debt-to-income ratio?

The CFPB recommends having a DTI of 36% or less, but says that some lenders will accept DTIs up to 43%.

Debt-to-income ratio = total monthly debt payments/gross monthly income.

Allen said that while lenders want to see a DTI of less than 43%, lower is better. “A lower DTI indicates you have more financial breathing room each month. So aim for the low 40s or even 30s if you can.”

A higher DTI ratio is not grounds for an automatic mortgage loan denial, though. If your DTI is higher, you still might be approved for a loan if you apply with excellent credit and a higher down payment.

Front-end vs. back-end DTI

The main difference between front-end and back-end DTI ratio is the inclusion of other debts. Both ratios are important for lenders to determine a borrower's overall financial health and repayment capacity. Here’s what they include:

  • Front-end DTI: Only considers housing-related expenses, including rent or mortgage principal and interest payments, property taxes, homeowners insurance and any homeowners association (HOA) fees
  • Back-end DTI: Also known as the total DTI ratio, taking into account all of the borrower's monthly debt obligations, including housing expenses

How to improve your debt-to-income ratio

“As for improving your DTI, it's just like getting in shape before a big race,” said Allen. “You want to reduce obligations where possible and increase your income if you can. Try paying down debts, especially ones with high interest, like credit cards or student loans. Their monthly payments can really weigh down your DTI ratio.”

If you can manage it, Allen also suggests taking on a part-time job or exploring investment income streams to increase your income and improve your DTI ratio.

Here are some more ideas to try:

  1. Consolidate your loans: Consolidating all your debts with a debt consolidation loan from a single lender might lower your monthly debt payment, which in turn lowers your DTI ratio. If you have federal student loan debt, research special financing options for these loans rather than refinancing or consolidating them with a private lender.
  2. Pay off a loan or debt: Get rid of debt that has the highest monthly payment versus the biggest debt overall, since DTI ratio focuses on monthly debt responsibilities and not your overall debt load.
  3. Increase your income: The only two numbers that matter for your DTI ratio are your debts and your income. If you can’t budge on your debt, the next thing to look at is your income. Are you due for a promotion? Is there any extra work you can take on with your current job to increase your pay?
  4. Get a co-signer: If your DTI ratio isn’t going to improve anytime soon, one option is to find a co-signer with low debt who is willing to guarantee the loan.

» MORE: 9 mortgage questions to ask your lender

Debt-to-income ratio requirements for loan types

Some mortgage types offer more flexible DTI ratio requirements than conventional mortgages.

Here are the max recommended DTI ratio requirements for each loan type, but remember, lenders have the final say on what is accepted.

  • Conventional loan: Recommended 28% for front-end; 36% but can go up to 50% for back-end
  • FHA loan: Recommended 31% for front-end; 43% but can go up to 57% for back-end
  • VA loan: No set limits; 41% recommended for back-end
  • USDA loan: Recommended 29% for front-end; 41% but can go up to 44% for back-end
  • Jumbo loan: Recommended 33% for front-end; 43% but can go up to 45% for back-end

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    Is business debt included in the DTI calculation?

    According to Fannie Mae, self-employed applicants may or may not have to count their business debt in their DTI ratio. It depends on how clear it is that the debt is being repaid through the company and whether there is a history of delinquency.

    What is considered income for DTI calculations?

    Lenders will consider more than just your salary or wages when calculating your DTI. Your income will also include any side income, including selling items on eBay or driving for Uber Eats. You can also include child support, bonuses and tips, pension and Social Security.

    Can you get a mortgage with 55% DTI?

    While 55% is higher than the recommended DTI, some lenders offering government-backed loans, like an FHA or VA loan, might approve you for a mortgage. Expect to need a better credit score and a high down payment to get approval with a high DTI ratio.

    Bottom line

    DTI ratio, or debt-to-income ratio, is an important calculation lenders look at during the mortgage application process. Most lenders prefer mortgage applicants who have a DTI ratio of 43% or less.

    However, this doesn’t mean you can’t buy a house with a higher DTI ratio, as requirements vary by lender, the type of loan and the size of the loan. You might still qualify if you have a strong credit score and are able to make a large down payment. Otherwise, there are steps you can take to lower your DTI ratio before filling out a mortgage application.

    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. Fannie Mae, “When can business debt be excluded from the DTI ratio?” Accessed July 27, 2023.
    2. Consumer Financial Protection Bureau, “Debt-to-income calculator.” Accessed July 27, 2023.
    3. Fannie Mae, “Selling Guide.” Accessed July 27, 2023.
    4. FHA Lenders, “FHA Debt to Income Ratio Requirements – Calculator.” Accessed July 27, 2023.
    5. VA News, “Debt-To-Income Ratio: Does it Make Any Difference to VA Loans?” Accessed July 27, 2023.
    6. U.S. Department of Agriculture, “Ratio Analysis.” Accessed July 27, 2023.
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