Your debt-to-income (DTI) ratio is one of the most important numbers lenders look at when you apply for a mortgage or other loan. This simple percentage tells the story of your financial health and determines whether you’ll qualify for the financing you need. Understanding how to calculate debt-to-income ratio can help you prepare for major purchases and improve your overall financial standing. So, how can you figure out your debt-to-income ratio before applying for a loan to see where you stand? Use our debt-to-income calculator.

KEY TAKEAWAYS

  • Your DTI ratio tells lenders what percentage of your monthly income goes toward debt payments.
  • Most conventional loans require DTI ratios of around 43%, but depending on your unique situation, you may still qualify for a loan with a higher debt-to-income ratio.
  • You can lower your DTI by paying down existing debt, increasing your income, or avoiding new financial commitments before applying for loans.
  • There are two types of DTI: front-end, which covers housing costs only, and back-end, which includes all monthly debt payments combined.

Try Our Debt-to-Income Ratio Calculator

DTI Ratio Calculator
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DTI Results
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Your DTI is good
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Total monthly debts: $XXX,XXX
Mortgage payment: $XXX,XXX
Remaining mo. income: $XXX,XXX

What Is a Debt-to-Income Ratio?

A debt-to-income ratio measures how much of your earnings you spend on debt payments each month. It’s a financial snapshot that shows lenders what portion of your paycheck goes toward existing loans and credit obligations before you even consider taking on new debt.

There are two types of DTI ratios you should be aware of when applying for a mortgage:

  • Front-end DTI: The front-end DTI ratio focuses exclusively on housing-related expenses, including your mortgage payment, property taxes, homeowners insurance, and, if applicable, mortgage insurance and HOA fees.
  • Back-end DTI: The back-end DTI ratio takes a much broader view, encompassing all your monthly debt payments, including credit cards, student loans, car payments, and housing costs.

Lenders use your DTI ratio as a key factor in assessing borrower risk throughout the underwriting process. A lower ratio suggests you have more financial breathing room and are less likely to struggle with additional debt payments. This assessment directly influences their decision to approve your loan application and the interest rate they’ll offer.

The debt-to-income calculator is an essential tool for borrowers and lenders to quickly determine financial capacity. Most lending institutions require this calculation early in the application process to streamline their decision-making and ensure borrowers can handle their proposed monthly payments.

Why Your DTI Ratio Matters

Your DTI ratio directly influences whether you can get a home loan. Lenders perceive borrowers with low DTI ratios as safer investments, often rewarding them with better interest rates and more favorable loan terms.

Different loan programs have varying DTI requirements that borrowers must understand before applying. Conventional loan requirements typically include a back-end DTI ratio of 36% or lower. Meanwhile, government-backed mortgages like FHA loans, VA loans, and USDA loans tend to offer more flexibility, sometimes allowing DTI that exceeds 50% for borrowers with excellent credit and substantial cash reserves.

VA loans provide even more lenient guidelines for qualifying military members and veterans. The key difference is that VA loans focus more on residual income rather than just the standard DTI ratio calculator results.

A high DTI ratio doesn’t automatically disqualify you from getting a loan, but it does limit your options significantly. You might face higher interest rates, need to make a larger down payment, or be required to work with specialized lenders who offer non-QM loans that offer options for higher-risk borrowers.

Understanding these thresholds helps you prepare before applying and gives you realistic expectations about your borrowing capacity. Many borrowers find that knowing their DTI ratio in advance allows them to shop more effectively and negotiate better terms with potential lenders.

Note that DSCR loans do not use DTI as an eligibility requirement. DSCR loans use the rental income of a property as a qualifier rather than your personal income.

How to Calculate Your Debt-to-Income Ratio

Learning how to calculate debt-to-income ratio is easy once you understand the basic formula:

(Total Monthly Debt Payments ÷ Gross Monthly Income) × 100

This simple calculation gives you the percentage that represents your DTI ratio and helps you understand your financial position.

Whether you’re doing the calculation on your own or using a DTI calculator, you’ll start by adding up all your monthly debt payments using accurate figures from your statements. This includes your mortgage and rent, car loans, credit card minimum payments, student loan payments, personal loans, and any other recurrent debt obligations. Don’t include utilities, groceries, or other living expenses that aren’t actual debt payments.

Your gross monthly income is the total amount you earn before taxes and deductions. Include your salary, bonuses, commissions, rental income, alimony, child support, and any other regular income sources that you can document. Use your pre-tax income figures for the most accurate numbers when you calculate debt-to-income ratio.

The debt-to-income ratio calculator is more accurate when you gather recent statements and use exact figures rather than estimates. Small differences in your inputs can change your ratio enough to affect loan qualification, so precision matters when calculating these numbers.

Understanding Your Results

A bearded real estate agent shows a smiling couple a document in the kitchen of a new home.

Once you calculate debt-to-income ratio using the standard formula, you need to understand what your number means for your financial health and borrowing ability. DTI ratios fall into several categories that lenders use to evaluate loan applications and determine approval likelihood.

  • Good (36% or lower): This range indicates strong financial management and gives you access to the best loan terms and interest rates available. Most lenders are comfortable approving traditional mortgages for borrowers in this category, and you’ll have plenty of room in your budget for other expenses.
  • Acceptable (37% to 50%): Borrowers in this range can still qualify for most loan programs, though you might face stricter requirements during underwriting. You can still be accepted with a higher DTI ratio, but lenders may require higher credit scores, larger down payments, or additional documentation to approve your application.
  • Needs improvement (above 50%): DTI ratios in this range make mortgage qualification challenging with conventional loans and standard lending programs. You may need to explore FHA, VA, or other government-backed loan programs that offer more flexible guidelines or focus on improving your ratio before applying for better loan options and terms.

Using a DTI ratio calculator regularly helps you track your progress and understand how financial changes affect your borrowing capacity. Many borrowers check their ratio quarterly to ensure they’re moving in the right direction toward their homeownership goals.

Tips to Improve Your Debt-to-Income Ratio

Improving your DTI ratio means either reducing your monthly debt payments or increasing your income. The best approach is to combine both strategies to achieve meaningful results quickly and maintain long-term financial health.

  • Pay off high-interest debt first: Tackle credit cards, personal loans, and other expensive debt to reduce your monthly obligations significantly. Consider using a debt consolidation calculator to explore combining multiple debts into a single payment.
  • Increase your income streams: Consider increasing your earnings through side hustles, freelance work, or asking for a raise at your current job. Even a modest income increase can significantly improve your DTI ratio when you calculate your debt-to-income ratio in future months and document any new income sources for at least two years before applying for a mortgage.
  • Budget strategically and avoid new debt: Create a strict budget that prioritizes debt repayment over discretionary spending and entertainment expenses. Avoid taking on new debt while you’re working to improve your ratio through strategic payments, as new credit cards, car loans, or other financing can quickly undo your progress and hurt your mortgage approval chances.

Track your progress monthly by recalculating your DTI ratio and celebrating small improvements along the way. Many people find that monitoring their progress with a debt-to-income calculator keeps them motivated and helps them stay on track.

See What Mortgages You Qualify for

Understanding your debt-to-income ratio is just the first step in your homebuying journey. Once you know where you stand financially, you can explore mortgage options that match your specific situation and long-term goals.

Griffin Funding specializes in helping borrowers navigate the mortgage process with personalized guidance and competitive rates. Our experienced loan officers can review your DTI ratio and recommend loan programs that fit your financial profile, whether you’re a first-time buyer or looking to refinance your current home. You can also explore additional financial tools through the Griffin Gold app to manage your loan process and finances more effectively.

Get started online today and see what mortgages align with your unique financial profile!

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Frequently Asked Questions

What is a good DTI ratio for a mortgage?

Most conventional mortgage lenders prefer a DTI ratio of 43% or lower, though some may accept ratios up to 45% with strong compensating factors like excellent credit or substantial reserves.

Lower DTI ratios give borrowers significant advantages, including better interest rates, more loan program options, and faster approval processes. When your DTI is well below these thresholds, lenders view you as a lower-risk borrower and often offer their most competitive rates and terms.

Does rent count in your DTI ratio?

Your monthly rent payment counts as a debt obligation in your DTI ratio calculation if you plan on keeping your rental after getting a mortgage. Lenders include rent along with other housing costs when determining your front-end DTI ratio, which focuses specifically on housing-related expenses and obligations.

However, if you're buying a home to live in and won't be keeping your rental, lenders typically won't count both your rent and new mortgage payment together since you'll stop paying rent once you move into your new home.

Can I qualify for a loan with a high DTI ratio?

You may still qualify for certain loan programs with a high DTI ratio, particularly FHA, VA, or USDA loans that offer more flexible guidelines than conventional programs. However, you'll likely face stricter requirements such as higher credit scores, larger down payments, or additional documentation to prove your ability to manage the additional debt successfully.

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 24 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 12 years in business.