Debt-to-Income Ratio Explained
Your debt-to-income ratio, or DTI, is one of the first things a lender checks. It measures how much of your income already goes to debt, which tells them how much room you have to take on more.
How to calculate DTI
Add up your total monthly debt payments (loans, cards, car finance, and your rent or mortgage), divide by your gross monthly income, and multiply by 100. If you pay 2,000 a month in debts and earn 6,000 gross, your DTI is about 33%. Note that it uses gross income, before tax, because that is the figure lenders work from.
Front-end vs back-end DTI
There are two versions. The front-end ratio counts only your housing payment against income; on 6,000 gross with a 1,500 housing payment, that is 25%. The back-end ratio counts all your debts, so adding a 500 car and card payment to that 1,500 gives 2,000, or 33%. Mortgage lenders usually focus on the back-end figure, and often check the front-end too, which is where the 28/36 rule comes from.
What is a good DTI?
As a rough guide, 36% or below is healthy, up to 43% is often the ceiling many mortgage lenders will accept, and above 43% makes approval harder and rates worse. That 43% figure is not arbitrary: regulators use it as a key threshold for "qualified mortgages" (see the Consumer Financial Protection Bureau). The lower your DTI, the more you look like a safe borrower.
How DTI differs from your credit score
The two are easy to confuse but measure different things. Your credit score reflects how reliably you have repaid debt in the past; your DTI reflects how stretched your income is right now. A lender looks at both: a great credit score will not rescue an application if your DTI shows you already spend most of your income on debt.
How to lower your DTI
Pay down high balances (especially cards), avoid taking on new debt before you apply, increase your income where you can, or consolidate expensive debt into a cheaper single payment. Even a small drop can move you into a better bracket, and clearing a single card or car loan often has an outsized effect because it removes a whole monthly payment from the top of the fraction.
Check yours
Work out your ratio with the Debt-to-Income Calculator, and see the effect of clearing debt with the Credit Card Payoff Calculator and Debt Consolidation Calculator. This is general information rather than financial advice.
Frequently asked questions
How do I calculate my debt-to-income ratio?
Add up your monthly debt payments (loans, cards, car finance, rent or mortgage), divide by your gross monthly income, and multiply by 100. Paying 2,000 in debts on 6,000 gross is a DTI of about 33%.
What is a good debt-to-income ratio?
36% or below is healthy. Many mortgage lenders treat 43% as the ceiling, which regulators also use for qualified mortgages, and a lower ratio means easier approval and better rates.
What is the difference between front-end and back-end DTI?
Front-end counts only your housing payment against income; back-end counts all your debts. Lenders usually focus on the back-end figure but often check both.
What counts toward DTI?
Recurring debt payments: loans, credit cards, car finance and your rent or mortgage. Everyday bills like groceries and utilities do not count.
How can I lower my DTI?
Pay down balances, avoid new debt before applying, increase income, or consolidate high-rate debt into a cheaper single payment. Clearing a whole payment, like a car loan, helps most.