Debt-to-Income Ratio (DTI): What It Is, How It Is Calculated, and How To Improve It

What is DTI

Your debt-to-income ratio (DTI) compares your monthly debt payments to your gross monthly income. Lenders use DTI during mortgage preapproval to estimate how comfortably you can handle a new mortgage payment along with your other obligations. Lower DTI usually means more options and more favorable pricing.

Front-end DTI vs back-end DTI

• Front-end DTI looks only at your proposed housing payment. That includes principal, interest, property taxes, homeowners insurance, and HOA dues where applicable. Many people refer to this as PITI.
• Back-end DTI looks at total monthly obligations, which is PITI plus eligible recurring debts.

What debts count in DTI

Included most of the time:

• Auto loans and leases
• Student loans
• Minimum credit card payments
• Personal loans
• Child support or alimony when required by court order
• Installment loans and buy-now-pay-later plans that report to credit

Not usually included:

• Netflix, gym memberships, utilities, phone bills, or other non-credit subscriptions
• Voluntary retirement contributions

What income counts in DTI

Lenders use gross monthly income that is stable, documented, and likely to continue.

• W-2 employees: base pay, and in some cases averaged bonus or overtime with a consistent history
• Self-employed borrowers: averaged net income from tax returns, sometimes bank statement or P&L programs when traditional documentation does not fit
• Other sources: pension, Social Security, rental income, verified alimony or child support

Typical DTI ranges by loan type

DTI limits vary by loan program and by the strength of your file. Think of these as general guideposts, not promises.

• Conventional mortgages: commonly approve in the mid to high 40s for total DTI when the rest of the file is strong
• FHA loans: often allow higher DTIs with compensating factors
• VA loans: use a residual income test and can be flexible depending on the overall profile
• USDA loans: use strict income and property eligibility with attention to household size
• Non-QM options: may allow different DTI caps or alternative calculations

Example: calculating DTI correctly

Scenario:

• Gross monthly income: $8,000
• Proposed PITI payment: $2,400
• Auto loan: $400
• Student loan: $250
• Credit card minimums: $75

Front-end DTI: 2,400 ÷ 8,000 = 30.00%
Back-end DTI: (2,400 + 400 + 250 + 75) = 3,125.
3,125 ÷ 8,000 = 39.06%

Six smart ways to lower your DTI

1. Pay down revolving balances to reduce minimums and improve credit tiers at the same time.
2. Choose a longer term to lower the monthly payment. You can always make extra principal payments later.
3. Increase down payment or use a program with reduced mortgage insurance, which lowers PITI.
4. Consolidate high-interest debt with a carefully structured cash-out refinance if it improves total cash flow and long-term cost.
5. Add a co-borrower with stable income if it fits your plan and the property will be owner-occupied.
6. Consider alternative documentation if you are self-employed, such as bank statement loans or P&L loans, when eligible.

Local guidance for Pennsylvania and Florida

We help clients across Bucks County, Montgomery County, Philadelphia, and throughout Pennsylvania and Florida. Local property taxes and insurance can change PITI and your back-end DTI, which is why we model real numbers for your specific area.

DTI and mortgage programs

• First-time homebuyers: pair DTI awareness with low down payment programs and rate quotes that include credits or points.
• Investors: conventional investment loans use DTI, while DSCR loans qualify primarily on property cash flow rather than personal income.
• Refinance: a lower rate or a different term can reduce DTI. We compare rate-and-term and cash-out side by side.

What to expect from our process

1. Discovery call to define goals, price range, and timeline
2. Document review and mortgage preapproval
3. Side-by-side quotes across multiple lenders for competitive rates and low fees
4. Lock strategy and file management through closing
5. Support after closing for refinance or cash-out scenarios

Next steps

• Get a personalized DTI review with payment scenarios for your price range
• Start your mortgage preapproval for a clear plan and competitive rates

 

FAQs

What is a good DTI for a mortgage?
Lower is better. Many conventional approvals fall in the mid to high 40% range when the rest of the file is strong. FHA can allow higher with compensating factors. We review your full picture before quoting options with competitive rates.

Do student loans count in my DTI even if I am in deferment?
Usually yes. If there is a reported payment, lenders use it. If not, guidelines often require a calculated payment based on a percentage of the balance. We will model it both ways and show the impact on preapproval.

Which debts are included in DTI and which are not?
Included: auto loans, student loans, minimum credit card payments, personal loans, and court-ordered alimony or child support.
Not included: utilities, phone, streaming, or other non-credit subscriptions. We confirm each item so your calculation is accurate.

How can I lower my DTI quickly to qualify?
Target revolving balances to reduce minimums, consider a slightly longer term, compare point and credit structures, add a co-borrower if eligible, or look at alternative documentation if self-employed. We will map a step-by-step plan for your timeline.

Does a higher DTI always mean a denial?
Not always. Strong credit, reserves, down payment, property type, and stable income can offset a higher DTI in many programs. We will show precise scenarios so you know your path forward.