Debt To Income Calculator

Debt-to-income ratio determines whether you qualify for a mortgage. A borrower earning $6,000 monthly with $2,400 in debt payments has a 40% DTI. Most conventional loans require 43% or lower. That 3-percentage-point difference is the margin between homeownership and rejection.

Understanding Debt-to-Income Ratio

Debt-to-income ratio is calculated by dividing total monthly debt obligations by gross monthly income, then multiplying by 100 to get a percentage. This metric reveals what portion of your income goes toward debt repayment each month. Lenders use DTI as a primary indicator of your capacity to take on additional debt and make consistent mortgage payments without financial strain.

Two types of DTI ratios matter for mortgage qualification. Front-end DTI (housing ratio) measures only housing expenses—your mortgage payment, property taxes, homeowners insurance, and HOA fees—divided by gross income. Back-end DTI includes all monthly debts: housing costs plus car loans, student loans, credit card minimums, personal loans, alimony, child support, and other recurring obligations. Most lenders focus on back-end DTI for final qualification decisions.

Standard DTI thresholds vary by loan type. An ideal DTI sits at 36% or below—this demonstrates strong financial health and gives you room for unexpected expenses. Conventional mortgages typically require front-end DTI below 28% and back-end below 43%. FHA loans allow up to 50% back-end DTI with compensating factors like high credit scores or substantial cash reserves. Some portfolio lenders accept even higher ratios but charge premium interest rates.

Here's a basic calculation: someone earning $5,200 monthly with $1,456 in total debt payments has a 28% DTI ($1,456 ÷ $5,200 = 0.28). That same person qualifies comfortably for conventional financing. Lenders use gross income—your pay before taxes, insurance, and retirement contributions—not take-home pay. This standardized approach allows consistent comparison across all borrowers regardless of their tax situations or benefit elections.

What Counts as Debt (and What Doesn't)

Debts that count toward DTI calculations include your mortgage or rent payment, car loan payments, student loans (even those in deferment), credit card minimum payments, personal loans, home equity lines of credit (HELOC), alimony, child support, and any other installment debt with recurring monthly obligations. Co-signed loans count fully in your DTI unless you provide documentation proving someone else has made all payments for at least 12 months.

Student loans in deferment still appear in DTI calculations. Lenders typically use 0.5% to 1% of the outstanding balance as the monthly payment if no payment is currently required. A $40,000 student loan balance in deferment might add $200-$400 to your debt calculation. Income-driven repayment plans showing $0 monthly payments require documentation, and lenders may still impute a payment based on the balance.

For credit cards, only minimum monthly payments count—not your full balance. If you carry a $5,000 balance with a $150 minimum payment, only that $150 affects your DTI. However, high balances impact your credit utilization ratio, which affects credit scores separately from DTI. Debts with fewer than 10 months of remaining payments may be excluded by some lenders. Paying off that car loan with 8 months left could improve your qualification significantly.

Expenses that don't count toward DTI include utilities (electric, gas, water), groceries, phone bills, internet service, streaming subscriptions, medical bills not in collections, insurance premiums (except mortgage insurance, which is included in housing costs), gasoline, and general living expenses. These costs matter for your personal budget but lenders exclude them from formal DTI calculations. Many first-time buyers are surprised utilities don't count—a common misconception.

Income Calculations and Documentation

Income that counts toward DTI qualification includes regular salary or wages, bonuses averaged over two years, commissions averaged over two years, self-employment income after deductions averaged over two years, rental property income at 75% of gross rents, alimony or child support received (with documentation), Social Security benefits, pension income, and disability payments. Lenders need to verify that income is stable and likely to continue.

Income that doesn't count includes unemployment benefits (temporary by nature), one-time bonuses or windfalls, anticipated future raises, income from side businesses or freelance work without at least two years of documented history, cash payments without tax documentation, and gifts. That promotion you're expecting next month? Lenders can't use it until you've actually received paychecks at the new rate.

Calculating gross monthly income from an annual salary is straightforward: divide by 12. A $72,000 annual salary becomes $6,000 monthly income for DTI purposes. Variable income like bonuses and commissions requires two-year averaging to account for fluctuations. If you earned $15,000 in bonuses last year and $9,000 the year before, lenders average to $12,000 annually or $1,000 monthly. This conservative approach protects against temporary income spikes.

Self-employed borrowers face additional complexity. Lenders review two years of personal and business tax returns, calculating income after business deductions and depreciation. A business showing $90,000 revenue with $30,000 in legitimate expenses yields $60,000 qualifying income—$5,000 monthly. Self-employed applicants often need to balance tax deductions (which reduce tax liability) against mortgage qualifying income (which requires higher reported earnings).

Required documentation typically includes recent pay stubs covering 30 days, W-2 forms from the past two years, personal tax returns for two years (all pages and schedules), bank statements showing deposits, and employment verification letters. Self-employed borrowers provide business tax returns and possibly profit-and-loss statements. Commissioned workers need detailed earning statements showing payment consistency. Complete documentation speeds the underwriting process and prevents loan delays.

DTI Requirements by Loan Type

Conventional loans represent the standard mortgage product backed by Fannie Mae and Freddie Mac. These typically require front-end DTI below 28% and back-end DTI under 36%, though automated underwriting systems may approve up to 43% with strong compensating factors. Borrowers with excellent credit scores (740+), substantial down payments (20%+ to avoid PMI), and significant cash reserves can sometimes exceed standard limits.

FHA loans offer more flexibility for borrowers with higher debt loads. The Federal Housing Administration insures these mortgages, allowing lenders to accept up to 50% back-end DTI when borrowers demonstrate compensating factors: credit scores above 680, minimal housing payment increase compared to current rent, consistent employment history, or cash reserves covering six months of payments. Front-end DTI typically stays below 31% for FHA qualification.

VA loans serve eligible military members, veterans, and surviving spouses. These mortgages don't enforce strict DTI limits but use a 41% back-end guideline. VA lenders employ residual income analysis—calculating leftover monthly income after debts and estimated living expenses—which sometimes allows higher DTI than conventional programs. USDA loans for rural properties typically cap back-end DTI at 41%. Jumbo loans for amounts exceeding conforming limits often impose stricter requirements, with many lenders preferring 38-43% maximum DTI.

Improving Your DTI Before Applying

You can improve DTI through two approaches: reducing monthly debt payments or increasing income. Both require time and planning, so start several months before your expected mortgage application. Small changes compound—paying off one car loan and two credit cards could shift your DTI from 41% to 34%, opening access to conventional financing with better rates.

Timing matters. Most improvements need 3-6 months to show up properly in your credit profile and documentation. Paid-off accounts should report zero balances, increased income needs pay stub history, and closed debts need confirmation from lenders. Don't close credit card accounts after paying them off—this can hurt your credit utilization ratio, which affects credit scores independently from DTI. Focus on paying down balances while keeping accounts open.

Real-World DTI Scenarios

Common Questions About DTI