The two ratios lenders use
Debt-to-income is your total monthly debt payments divided by your gross monthly income. Lenders actually calculate it twice.
The front-end ratio asks whether the roof alone is affordable. The back-end ratio asks whether everything together is. When someone says "your DTI", they almost always mean the back-end figure — and it is the one that decides applications.
What the thresholds mean
- Under 28% / 36% — the classic guideline: housing under 28% of gross income, all debt under 36%. Comfortable, and you will not have trouble borrowing.
- 36–43% — workable. Most mortgage programmes still lend here, though you may see a worse rate. Life has less slack in it than the number suggests.
- 43% — a widely used ceiling for qualified mortgages in the US, and a common limit elsewhere. Above this, options narrow sharply.
- Over 50% — more than half your gross income is committed before you buy food. Most lenders decline, and they are right to.
These are conventions rather than laws, and they vary by lender, country and loan type. Some programmes stretch further with compensating factors — a large deposit, substantial savings, a high credit score.
Use gross income, not take-home. Lenders calculate DTI on pre-tax income, so that is what this uses. It also means your ratio looks better here than it feels in your bank account: a 36% back-end ratio on gross income can easily be 45% or more of what actually lands. Comfortable to a lender is not the same as comfortable to you.
What goes in, and what does not
Counted: rent or mortgage (including property tax and insurance if escrowed), car loans, student loans, credit card minimum payments, personal loans, and court-ordered alimony or child support.
Not counted: utilities, phone, groceries, insurance you pay separately, subscriptions, childcare, and anything you pay on a card and clear in full each month. These are living costs, not debt service — which is precisely why a healthy DTI does not automatically mean a healthy budget. For that, run the 50/30/20 budget calculator.
How to bring it down
Only two things move the ratio, and one is much faster than the other.
Reduce the monthly payments. Clear a small debt entirely and its whole payment leaves the numerator — which is why paying off a 250-a-month car loan does more for your ratio than paying an extra 250 towards a mortgage. If you are preparing to apply for something, target whichever debt has the largest payment relative to its balance. The debt payoff calculator will order them for you.
Increase income. Slower, but it works, and lenders generally want two years of history for anything variable — bonuses, freelance work, a second job.
What does not work: opening new credit, moving a balance to a longer term right before applying, or making a large purchase on finance. All three raise the ratio at the worst possible moment.