DTI is the single most important qualifying metric for a mortgage. It is how lenders measure whether you can afford the total debt stack. The formula: total monthly debt payments divided by gross monthly income. There are two ratios — front-end (housing only) and back-end (housing plus all other debts).
Worked example: $8,500/mo gross income. Proposed housing payment $2,400 (PITI + HOA). Other debts: $450 car payment + $180 student loan + $60 minimum credit card = $690. Front-end = $2,400 / $8,500 = 28.2%. Back-end = ($2,400 + $690) / $8,500 = 36.4%. Right at the conservative threshold.
DTI thresholds by loan program
- 28/36 — conservative rule-of-thumb. Financial-planner recommended.
- Conventional: up to 45% back-end standard, 50% with strong compensating factors (reserves, credit).
- FHA: up to 57% back-end with automated underwriting approval.
- VA: no hard DTI cap; uses residual income instead. Many VA loans close at 60%+ DTI if residual income is strong.
- Jumbo: 43% hard cap at most lenders.
- USDA: 41% back-end standard, 44% with strong factors.
What counts in DTI — and what doesn't
Counts: minimum credit card payments (not full balance), auto loans, student loans (at minimum payment — FHA uses 0.5% of balance), personal loans, child support, alimony, HOA dues, proposed housing (PITI + HOA). Does not count: utilities, cell phone, insurance premiums (except health if paid separately), car insurance, groceries, gas, subscriptions, 401(k) contributions, childcare (even though it's huge for real affordability).
How to reduce DTI before applying
- Pay off small balances on credit cards and personal loans (eliminates the minimum payment from DTI)
- Refinance auto loans to longer term (lower monthly payment)
- Pay off auto loan if under 10 remaining payments (Fannie Mae allows removing it from DTI)
- Add co-borrower with income and low debt
- Increase down payment to reduce PITI