Debt-to-Income Ratio (DTI)
DTI is your total monthly debt payments divided by your gross monthly income, shown as a percentage. Lenders use it to judge how much new debt you can handle. A lower DTI signals more room in your budget and improves loan approval odds.
Lenders look at two versions of DTI. The front-end ratio counts only housing costs (your full PITI payment) against gross income. The back-end ratio adds all other recurring debt: car loans, student loans, credit card minimums, and the like. The back-end ratio is the one most mortgage underwriting focuses on.
Many lenders prefer a back-end DTI at or below 43 percent, though limits vary by loan type and other strengths in your file. Because DTI uses gross income, it does not reflect taxes, retirement contributions, or everyday expenses, so a loan that fits the ratio can still feel tight in practice. Lowering DTI means either paying down debt or raising income before you apply.
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Related terms: PITI
Source: Consumer Financial Protection Bureau, Owning a home
Last updated . Part of the FinExplained finance glossary .