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

Lenders look at a myriad of financial data points when they’re determining whether to issue you a mortgage loan; an important ratio they look at is your debt-to-income ratio, often shortened to DTI. 

Your DTI compares your debt obligations (including credit cards, personal loans, car payments, and a potential mortgage payment) against your income. DTI is considered a key indicator of whether you’re equipped to balance a mortgage with your existing debt obligations and other everyday expenses.

What is a debt-to-income ratio?

Your debt-to-income ratio (DTI) reflects the amount of your debt compared to how much money you make. While there are different ways to calculate DTI, the most common method is to total your monthly debt payments and divide them by your monthly gross income. DTI is expressed as a percentage.

$550 monthly debt payments ➗ $3,000 gross monthly income x 100 = 18.3%

Why is your debt-to-income ratio important?

One of the biggest risks for lenders is that the borrower won’t repay the mortgage. Banks and mortgage brokers do a thorough investigation of your finances to determine how likely you are to make the required payments on your loan. 

Debt-to-income ratio is one of many metrics they use to determine this, as it provides information on how much of your income is already spoken for by other debt payments, what portion the potential mortgage would take up, and how much you’d have left for other necessities. In other words, your DTI tells the lender how affordable the mortgage would be for you.

How to calculate your debt-to-income ratio 

The DTI formula may seem straightforward, but there are a few different varieties of DTI that lenders like to use. Each one gives different insight into a borrower’s financial picture.

Front-end DTI

This ratio compares just your housing expenses (like your mortgage, taxes, insurance, etc.) against your income. It’s also sometimes called the principal, interest, taxes, and insurance ratio (PITI). Continuing the previous example, if Maria took out a mortgage and the payments (including taxes and insurance) were $1,200 per month, her front-end DTI would be 40%. 

$1,200 monthly housing expenses ➗ $3,000 monthly income x 100 = 40%

This helps a lender understand how much of a borrower’s monthly expenses the proposed mortgage represents. 

Back-end DTI

This ratio includes not only mortgage loans and associated costs but all other debt as well — including car payments, credit cards, and student loans. So if Maria took out the mortgage with the $1,200 payment, to get her back-end DTI she would add her other $550 in monthly debt payments as well, then divide by her $3,000 monthly income. 

$1,200 monthly housing expenses + $550 other monthly debt payments = $1,750

$1,750 ➗ $3,000 monthly income x 100 = 58.3%

The back-end DTI tells a lender about your proposed mortgage in context of your total debt obligations and income. 

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

When assessing the ideal DTI for a mortgage, lower is better. Lenders like to see that you have ample ability to repay your mortgage along with your other debts and still have money for basic expenses like food and utilities.

Each type of mortgage comes with requirements for the maximum DTI you can have and still qualify for the loan. Here’s a breakdown of the guidelines to meet for the most common types of mortgages:

How does your debt-to-income ratio affect your mortgage approval? 

Your DTI is a strong indicator of your financial health, so lenders weigh this heavily in determining whether to give you a mortgage. A high DTI may exclude you from certain types of loans. Also, having a lower DTI makes you a more desirable borrower in the eyes of lenders, which can raise your chances for approval and a lower interest rate on your mortgage loan. 

If your DTI is on the high end, there may be other compensating factors that can make up for it, such as:

• A large down payment
• A high credit score
• Significant savings
• Stable employment history

If your DTI is high but you still qualify for a mortgage in other respects, you may be approved but with a higher interest rate.

Tips to improve your debt-to-income ratio

You have some control over your DTI and you can take steps to improve it if you need to, though doing so may take some time. Here are a few ways to start reducing your DTI:

• Pay down your debts: If you can afford to do so, eliminate a source of debt (such as a credit card with a small monthly payment) so it won’t figure into your DTI anymore.
• Increase your income: You can ask for a raise at your day job, increase the clients for your business, or take on a side hustle to boost the income side of the DTI equation.
• Consolidate your debts: If it will result in a smaller monthly payment, consolidate your debts into a single loan to help reduce your DTI. Be mindful, however, that smaller payments could mean you’ll pay more interest over time.

Good debt-to-income ratio for a mortgage FAQ 

What is the maximum DTI for an FHA loan?

The general guidelines for a maximum DTI for an FHA loan is 43%; this includes both mortgage expenses and other debt obligations. However, if there are significant compensating factors, borrowers with otherwise healthy financial profiles may qualify for an FHA mortgage with higher DTIs.

Can you get a mortgage with a high DTI?

Possibly. Underwriters have some leeway to allow higher DTIs with certain types of loans, particularly if there are compensating factors or extenuating circumstances that show that the other portions of your financial situation are stable. 

Talk with a few lenders to get pre-approved once you begin househunting in earnest. A DTI that is too high for one lender’s requirements may be sufficient for another’s. 

What expenses are excluded from DTI calculations?

Medical collections generally aren’t included. Also, if your name is on a debt but you are not the one repaying it, your lender may exclude that from consideration if you can show that someone else is regularly making payments. Most other debts (credit cards, student loans, personal loans, car notes, etc.) are included in your DTI calculation.

Regular monthly bills (such as utilities, cell phone bills, etc.) don’t count as debts.