Two Ratios, One Decision
Debt-to-income is the fraction of your gross monthly income committed to debt payments. Lenders compute two versions:
Front-end DTI = Housing payment / Gross monthly income
Back-end DTI = All monthly debt payments / Gross monthly income
The back-end ratio is the one that decides mortgage approvals. It is also the more useful personal metric, because it captures every obligation that must be paid before any discretionary spending happens.
Where the Lines Are Drawn
| Back-end DTI | What it means in practice |
|---|---|
| Under 36% | Routine approval on conventional loans. Best pricing available. |
| 36–43% | Still within the qualified-mortgage rule. Approval usual, but the file needs reserves or a strong score. |
| 43–50% | Outside QM. FHA and some portfolio lenders will still lend; the rate is higher and the file is scrutinised. |
| Over 50% | Effectively unlendable for a mortgage. Debt reduction comes first. |
The 43% figure is not arbitrary. It comes from the Consumer Financial Protection Bureau's qualified-mortgage standard, which gives lenders legal safe harbour and is why so many loan programs stop precisely there.
Gross Income, Minimum Payments
Two conventions catch people out. Income is before tax: a $7,000 gross month is used even though perhaps $5,400 arrives. Debt is the required minimum, not what you choose to pay: paying $600 a month against a card whose minimum is $120 counts as $120.
Bonus and commission income counts only with a two-year history and is averaged. Overtime is treated the same way. A recent job change into a higher-paying role in the same field is usually accepted; a change of industry often resets the clock.
What Is Not Counted
Utilities, phone and internet, insurance other than the home's, groceries, childcare, medical bills in collections without a payment plan, and 401(k) loans. Their absence is the reason a 43% DTI can feel like far more than 43% — the ratio ignores the largest categories of ordinary household spending.
Lowering the Ratio
In descending order of speed:
- Pay off the small loans, not the large ones. A car loan with 8 payments left at $450 removes $450 from the ratio; $3,600 of cash removes as much from your DTI as a $54,000 raise would.
- Do not open anything new. A financed sofa or a new card can move the ratio enough to fail underwriting between pre-approval and closing.
- Add a co-borrower with income and little debt — the ratio is computed on the combined file.
- Extend the term on an existing loan to cut its minimum payment. This costs more interest overall and is a trade, not a win.
Frequently Asked Questions
What DTI do I need to buy a house?
Under 43% for most programs, under 36% for the best terms. FHA loans reach 50% with strong reserves or a high credit score.
Does rent count in my DTI?
Your current rent does not, because it disappears when you buy. The new housing payment replaces it in the calculation.
Do student loans in deferment count?
Usually yes. Most programs use the documented income-driven payment, or a fixed percentage of the balance — commonly 0.5% — when the payment is $0.