What Is DTI (Debt-to-Income Ratio)?

Short answer

DTI is your total monthly debt payments divided by your gross (pre-tax) monthly income, shown as a percentage. If you earn $8,000 a month and your debts total $3,200, your DTI is 40%. It is one of the first numbers an underwriter checks on every mortgage application.

Definition

Debt-to-income ratio (DTI) measures how much of your gross monthly income goes to debt payments, including the new mortgage. Lenders use it to judge whether you can afford the loan; the CFPB notes that different loan products and lenders set different DTI limits.

Worked example

Say you earn $120,000 a year, or $10,000 gross per month. Your car payment is $550, student loans $300, and credit card minimums $150, for $1,000 in debts. The new mortgage payment (PITI plus HOA) would be $3,400. Total debt: $1,000 + $3,400 = $4,400. DTI: $4,400 / $10,000 = 44%. Your front-end ratio (housing only) is $3,400 / $10,000 = 34%.

How DTI is calculated

Add every monthly debt that appears on your credit report or that the lender must count: the proposed mortgage payment (principal, interest, taxes, insurance, HOA), car loans, student loans, credit card minimums, personal loans, child support and alimony.

Divide that total by your gross monthly income. For W-2 employees that is base salary plus qualifying overtime, bonus or commission averaged over time. For self-employed borrowers it is the net income on your tax returns, or the deposits on a bank statement loan.

• Utilities, phone bills, insurance premiums not tied to the home and groceries are not debts for DTI.
• Debts with fewer than 10 payments left can often be excluded; ask your loan officer.

Why DTI matters

A lower DTI gives the underwriter more room to approve the file and may open better pricing. A high DTI does not automatically mean a denial: strong credit, reserves or a larger down payment can offset it in automated underwriting.

If your DTI is too high for a conventional or FHA loan, a broker can look at other paths: paying down a card before closing, adding a co-borrower, or using a DSCR loan for an investment property, which qualifies on the property's rent instead of your personal DTI.

In South Florida

In South Florida the housing payment that goes into DTI is heavier than in most states. Windstorm and flood insurance, high property taxes on a new purchase (no Save Our Homes cap yet), and condo HOA dues of several hundred dollars a month all count. Two buyers with the same income and the same price point can end up with very different DTIs depending on whether they buy a condo in Brickell or a house in Kendall.