How to figure your debt-to-income ratio
Add up your monthly debt payments and divide by your gross monthly income, which is what you earn before taxes and other deductions. The Consumer Financial Protection Bureau (CFPB) gives this example: a $1,500 mortgage, a $100 auto loan, and $400 of other debts on $6,000 of gross income make a DTI of 33%.
Back-end DTI = (housing + all other debt payments) ÷ gross monthly income. Front-end DTI = housing ÷ gross monthly income.Gross income is the trap here. A ratio built on pay before taxes makes a payment look smaller than it feels, since you live on take-home pay. Use annual pay divided by 12, not your deposit.
| Monthly payments | $3,000 | $4,000 | $5,000 | $6,000 | $8,000 | $10,000 | $12,000 |
|---|---|---|---|---|---|---|---|
| $1,000 | 33.3% | 25% | 20% | 16.7% | 12.5% | 10% | 8.3% |
| $1,500 | 50% | 37.5% | 30% | 25% | 18.8% | 15% | 12.5% |
| $2,000 | 66.7% | 50% | 40% | 33.3% | 25% | 20% | 16.7% |
| $2,500 | 83.3% | 62.5% | 50% | 41.7% | 31.3% | 25% | 20.8% |
| $3,000 | 100% | 75% | 60% | 50% | 37.5% | 30% | 25% |
| $4,000 | 133.3% | 100% | 80% | 66.7% | 50% | 40% | 33.3% |
Which payments count in a debt-to-income ratio?
For a mortgage, the lender’s program decides. Fannie Mae’s Selling Guide is a clear published example of what goes in the total:
- The housing payment, including principal, interest, taxes, insurance, and HOA dues on the home you are buying.
- Installment loans with more than ten payments left, such as car and student loans. Shorter ones still count if they significantly affect your ability to pay.
- Revolving accounts such as credit cards, at the monthly payment. If the credit report shows none, Fannie Mae uses 5% of the balance, with a $10 floor in its automated system.
- Lease payments, however few months are left.
- Alimony, child support, and maintenance that run more than ten more months, along with other recurring obligations and any net rental loss.
Groceries, utilities, and phone bills aren’t debts, so leave them out here. If you’re buying a home, use the new housing payment in place of your rent, not on top of it.
Student loans have their own rules
Student loans still count when your payment is $0 or paused, and programs treat them differently. On a $40,000 deferred balance, Fannie Mae lets a lender use 1% of the balance, or $400 a month, or a fully amortizing payment from the loan's terms. It also allows a documented $0 payment on an income-driven plan. FHA uses your reported or documented payment, and 0.5% of the balance, or $200, when the credit report shows zero. Ask your lender which applies.
What is a good debt-to-income ratio?
There isn't one number. The CFPB says different loan products and lenders have different limits. A common rule of thumb is 28% for housing and 36% for all debts, and that's a planning guide, not a lending rule. The example's 25.7% and 37.5% would pass the first half and miss the second by 1.5 points.
| Standard | Housing | Total | Conditions |
|---|---|---|---|
| 28/36 rule of thumb | 28% | 36% | A planning guide, not a lending rule. |
| Fannie Mae, manual underwriting | None stated | 36% | Stated maximum for manually underwritten loans. |
| Fannie Mae, manual with credit and reserves | None stated | 45% | Needs the credit score and reserves in its Eligibility Matrix. |
| Fannie Mae, Desktop Underwriter | None stated | 50% | Maximum allowable for its automated system, which runs its own risk assessment. |
| FHA, manual underwriting | 31% | 43% | No compensating factors needed. Also the cap below a 580 score or with no score. |
| FHA, manual with one factor | 37% | 47% | Score of 580 or more and one compensating factor, such as reserves. |
| FHA, manual with no discretionary debt | 40% | 40% | Score of 580 or more and no discretionary debt. |
| FHA, manual with two factors | 40% | 50% | Score of 580 or more and two compensating factors. |
| VA standard | None stated | 41% | Not a hard cap. Above it, a lender must justify approval unless residual income beats the guideline by 20%. |
FHA’s ratios above apply to manual underwriting. Fannie Mae’s 50% is for its automated system, which runs its own risk assessment. VA’s 41% is a standard rather than a hard cap, and it sits alongside a residual income test of what’s left for living costs after your obligations. VA’s rule says no single factor is the final word.
How to lower your debt-to-income ratio
To reach a target, you can cut payments or raise income, and paying down the biggest balance may not be the fastest route. In the example, reaching 36% means cutting $105 a month. The cheapest way is to clear the car loan for $18,500, which brings you to 31.5%. This tool tests every combination of your debts to find the least cash that works.
| Debt cleared | Balance | Payment freed | DTI after |
|---|---|---|---|
| car loan | $18,500 | $420 | 31.5% |
| student loans | $26,000 | $310 | 33.1% |
| credit card minimums | $3,200 | $95 | 36.1% |
Compare the rows. Clearing $26,000 of student loans gets you to 33.1%, while the smaller $18,500 car loan gets you to 31.5%. Paying part of an installment loan generally doesn't lower its payment, so a partial payoff may not move this ratio at all. Paying down a card may lower its minimum, which this plan doesn't count.
Paying off debt won’t change your front-end ratio. Only a lower housing payment or more income does that. And cash spent clearing debt can’t also go toward a down payment or reserves, so check both before you decide.
When this ratio can mislead you
A ratio doesn’t measure taxes, child care, or savings, and two households at the same DTI can have very different room to spare. A limit is what a program allows, not what fits your life. Our home affordability calculator turns these ratios into a home price, and the budget calculator checks them against what you actually spend.
The limits here are for mortgages. We don’t list a standard for car loans, personal loans, or rentals, since we didn’t find a single published one. Ask the lender or landlord directly. Lenders may also count your income differently than you do. Self-employment, bonus, and overtime income can have added rules. A HUD-approved housing counselor can go through your numbers at little or no cost, and our guide to first-home numbers covers the rest of the picture.
Common questions
Do lenders use gross or net income?
Gross. The CFPB defines DTI using income before taxes and other deductions, and VA’s rule divides by gross salary or earnings.
Is rent included in my debt-to-income ratio?
For a current picture, include it as your housing payment, as this tool does. When you apply for a mortgage, the new payment replaces your rent in the ratio.
What is the difference between front-end and back-end DTI?
Front-end counts only housing. Back-end counts housing and every other debt payment. In the example, they are 25.7% and 37.5%. The CFPB’s definition uses all your monthly debt payments, which is the back-end ratio, and it’s the one Fannie Mae and VA limit.
Do credit card balances count, or only the minimum?
The monthly payment counts, not the balance. That's why clearing a card can matter less than its balance suggests. To see the cost of carrying it, use the credit card payoff calculator.
Will consolidating my debts lower my DTI?
It can if the new payment is lower than the ones it replaces. A longer term may be why, and that can cost more overall. Test both with the debt consolidation calculator.
What about a loan with only a few payments left?
Fannie Mae counts installment debts with more than ten payments left. Shorter ones still count if they significantly affect your ability to pay, so don’t assume yours will drop out.
Sources
- What is a debt-to-income ratio? · Consumer Financial Protection Bureau
- B3-6-02: Debt-to-Income Ratios (Selling Guide) · Fannie Mae
- B3-6-05: Monthly Debt Obligations (Selling Guide) · Fannie Mae
- FHA Single Family Housing Policy Handbook 4000.1 · U.S. Department of Housing and Urban Development
- 38 CFR 36.4340: Underwriting standards, processing procedures, lender responsibility, and lender certification · U.S. Department of Veterans Affairs, Code of Federal Regulations