The percentage of your gross monthly income that goes toward paying debts, including your future mortgage payment, car loans, student loans, and minimum credit card payments. Lenders use DTI to measure your ability to manage monthly payments. Most mortgage programs require a DTI below 43%, though some allow up to 50%. For example, if you earn $6,000 per month and your total debts are $2,400, your DTI is 40%.
Why It Matters
Debt-to-income ratio (DTI) is how lenders decide if you can afford a mortgage. There are two types: front-end DTI (housing costs only ÷ gross income, limit 28%) and back-end DTI (all debts ÷ gross income, limit 36-43%). If you earn $7,000/month gross, the 28% rule caps your housing payment at $1,960/month, and the 36% rule caps total debts at $2,520/month.
Different loan programs allow different DTIs. Conventional loans typically cap at 36-45%. FHA goes up to 43%, sometimes 50% with strong compensating factors (large reserves, minimal payment increase). VA loans have no official front-end limit and a soft 41% back-end guideline. Just because you qualify at 45% DTI doesn't mean you should — financial planners recommend staying under 36% total.
Real-World Example
Income: $85,000/year ($7,083/month gross). Car payment: $450. Student loans: $300. Credit cards: $100. Total non-housing debt: $850. Back-end 36% limit: $2,550/month total. Available for housing: $2,550 - $850 = $1,700/month. Front-end 28% limit: $1,983. Effective max housing: $1,700 (the 36% rule is the binding constraint because of existing debts).
Pro Tip
Use our DTI calculator to see exactly where you stand. Every $100/month in debt you eliminate adds roughly $15,000-$20,000 to your purchasing power.