The ratio lenders check first
Before approving a mortgage, a lender compares your monthly debt payments with your gross monthly income. This debt-to-income ratio (DTI) measures how much of your pay is already spoken for. This calculator computes both versions lenders use and the payment limits that follow from them.
Front-end and back-end DTI
- Front-end DTI = monthly housing payment ÷ gross monthly income. Housing means principal, interest, property tax, homeowners insurance, HOA dues and mortgage insurance.
- Back-end DTI = (housing payment + all other monthly debt payments) ÷ gross monthly income. Other debts include minimum credit card payments, auto, student and personal loans, and court-ordered payments.
Utilities, groceries, phone bills and insurance premiums other than homeowners insurance are not counted.
The usual limits
- 28/36 rule: a traditional guideline of 28% front-end and 36% back-end.
- 43% back-end: the reference point for most qualified mortgages.
- FHA loans start from 31/43 and can go higher with compensating factors such as reserves or a strong credit score.
- Automated underwriting for conventional loans may accept up to about 50% for strong files.
Worked example
Your household earns $7,500 a month before tax. The new home would cost $2,100 a month all-in, and you pay $650 a month on a car loan and a student loan.
- Front-end DTI: 2,100 ÷ 7,500 = 28.0%.
- Back-end DTI: (2,100 + 650) ÷ 7,500 = 36.7%, just above the classic 36%.
- Maximum housing payment at 28%: $2,100.
- At a 43% back-end limit, housing could go up to 7,500 × 0.43 − 650 = $2,575.
DTI by income
| Gross monthly income | Front-end DTI | Back-end DTI | Max housing at 28% |
|---|---|---|---|
| $5,000 | 42.0% | 55.0% | $1,400 |
| $6,000 | 35.0% | 45.8% | $1,680 |
| $7,500 | 28.0% | 36.7% | $2,100 |
| $9,000 | 23.3% | 30.6% | $2,520 |
| $12,000 | 17.5% | 22.9% | $3,360 |
How to lower your DTI
- Pay off small balances before applying: clearing a $150-a-month card or loan payment lowers back-end DTI by 2 points on $7,500 of income.
- Avoid new credit in the months before a mortgage application.
- Add a co-borrower’s income, if their debts are low.
- Choose a cheaper home or a larger down payment, which shrinks the housing payment.
A DTI that a lender accepts is not always comfortable for your budget. Many planners suggest keeping total debt payments under about a third of gross pay to leave room for saving.