Now that you know your number, let's break down what it actually means and how to improve it.
Your debt-to-income ratio (DTI) compares how much you owe each month to how much you earn. It's expressed as a percentage.
For example, if you pay $2,000 toward debts each month and earn $6,000 before taxes, your DTI is 33%.
Lenders look at this number because it shows how much of your income is available. A lower DTI means you have more breathing room to take on new debt and you're much less likely to miss payments.
There are actually two types of DTI:
Front-end DTI only includes housing costs (mortgage or rent, property taxes, insurance). This is sometimes called your "housing ratio."
Back-end DTI includes all monthly debt obligations like housing, car payments, student loans, credit cards, personal loans, and any other recurring debt. This is the number most lenders care about.
When people talk about DTI, they usually mean back-end DTI. That's what the calculator above measures.
If you want to do the math yourself, here's the formula:
DTI = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100
Include everything you're obligated to pay each month:
- Mortgage or rent payment
- Car loan payment
- Student loan payment
- Credit card minimum payments
- Personal loan payments
- Child support or alimony
- Any other debt with a monthly payment
Don't include expenses like groceries, utilities, insurance premiums (unless bundled with your mortgage), or subscriptions. Lenders only care about debt obligations.
This is your income before taxes and deductions. If you earn $72,000 per year, your gross monthly income is $6,000.
Include all income sources:
- Salary or wages
- Self-employment income
- Bonuses and commissions (if consistent)
- Rental income
- Alimony or child support received
- Investment income
Divide your total monthly debt by your gross monthly income, then multiply by 100.
Example:
- Monthly debts: $1,800 (mortgage) + $400 (car) + $200 (student loans) + $100 (credit cards) = $2,500
- Gross monthly income: $7,500
- DTI: $2,500 ÷ $7,500 = 0.33 × 100 = 33%
Here's how lenders typically view different DTI ranges:
Rating: Excellent
What It Means: You're in great shape. Most lenders will approve you for their best rates.
Rating: Acceptable
What It Means: You can still qualify for most loans, including mortgages, but you may not get the lowest rates.
Rating: Concerning
What It Means: Loan approval becomes harder. You may need to pay down debt before applying.
Rating: High Risk
What It Means: Most lenders will decline your application. Focus on reducing debt before taking on more.
Under the Consumer Financial Protection Bureau's Qualified Mortgage rules, lenders prefer borrowers with a DTI at or below 43%. Some lenders allow up to 50% for borrowers with strong credit and cash reserves, but 43% is the standard benchmark.
For the best loan terms and lowest stress, aim for a DTI under 36%.
Different loans have different DTI limits:
Conventional Mortgages: Most lenders cap DTI at 43-45%, though some allow up to 50% with compensating factors like excellent credit or significant savings.
FHA Loans: Generally allow up to 43% DTI, but borrowers with strong credit and cash reserves may qualify with ratios up to 50%.
VA Loans: No official DTI limit, but most lenders prefer 41% or below. The VA looks at residual income (what's left after all expenses) rather than a hard DTI cutoff.
Auto Loans: Lenders typically want your total DTI (including the new car payment) to stay under 40-50%. Some subprime lenders accept higher ratios but charge significantly more interest.
Personal Loans: Requirements vary widely. Online lenders may approve DTIs up to 50%, while banks and credit unions often prefer 35-40%.
Credit Cards: There's no official DTI requirement, but your ratio affects your credit limit and approval odds.
If your DTI is higher than you'd like you have two paths: reduce your debt payments or increase your income. Here's how to approach both.
This is the most direct way to lower your DTI. Every debt you eliminate removes that payment from your ratio.
Focus on debts with the highest monthly payments for the fastest DTI improvement. Or, you can use the debt snowball method (smallest balance first) or debt avalanche method (highest interest first) to build momentum.
Tracking your progress makes a difference. When you can see your debt shrinking and your DTI improving month over month, you're more likely to stick with it.
Download Relief to pay off your debt for less and watch your DTI drop.
Every new loan or credit card balance increases your DTI. If you're planning to apply for a mortgage or major loan soon, avoid financing any new purchases.
A higher income lowers your DTI even if your debt stays the same. Consider:
- Asking for a raise
- Taking on overtime or a side job
- Starting a freelance gig
- Renting out a spare room
Even a temporary income increase can help you qualify for a loan, as long as you can document the income.
Refinancing debt at a lower interest rate or longer term can reduce your monthly payment, which lowers your DTI. Just be aware that extending your loan term means paying more interest over time.
Credit card minimum payments are based on your balance. As you pay down the balance, your minimum payment drops and so does the amount counted in your DTI.
Your ratio changes every time you pay down debt or your income shifts.
If your DTI is higher than 43% right now, it doesn't mean you're stuck. It means you have a clear target to work toward.
Start by knowing your number and make a plan to improve it.
The fastest path is paying off debt systematically. Whether it's snowball or avalanche, pick a method and track every payment. Small progress adds up faster than you'd expect.
