Understanding Your Debt-to-Income Ratio (DTI)
Your debt-to-income ratio (DTI) is your total monthly debt payments divided by your gross monthly income, expressed as a percentage. A DTI of 36% or lower is considered good by most lenders. For example, if you earn $5,000/month and pay $1,500 in debts (rent, car loan, student loans, credit cards), your DTI is 30%. This single number determines whether you qualify for mortgages, apartments, car loans, and credit cards.
How to Calculate DTI
The formula is simple:
DTI = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100
Monthly debt payments include: rent or mortgage, car payments, student loans, minimum credit card payments, personal loans, child support, and alimony. They do not include utilities, groceries, insurance premiums, or subscriptions.
Gross income means your total income before taxes and deductions — not your take-home pay.
Front-End vs. Back-End DTI
Mortgage lenders look at two versions of DTI:
- Front-end DTI (housing ratio): Only your housing costs (rent or mortgage + property tax + insurance) divided by income. Lenders prefer this below 28%.
- Back-end DTI (total DTI): All monthly debts including housing divided by income. Lenders prefer this below 36%.
DTI Ranges: What's Good, Acceptable, and Risky
| DTI Range | Rating | What It Means |
|---|---|---|
| Under 20% | Excellent | Easily approved for best rates and terms |
| 20–35% | Good | Healthy finances, approved for most loans |
| 36–43% | Acceptable | May qualify, but at higher interest rates |
| 44–50% | High Risk | Limited options, likely denied for mortgages |
| Over 50% | Critical | Financial distress — focus on debt reduction |
Why DTI Matters
DTI is the second most important factor (after credit score) that lenders use to evaluate your financial health. A high DTI signals that too much of your income is already committed to debt, making new payments risky. Here's where DTI specifically matters:
- Mortgage approval: Most lenders require DTI under 43% for qualified mortgages. FHA loans may accept up to 50% with strong compensating factors.
- Apartment applications: Landlords typically require income of 3x rent (equivalent to a 33% housing DTI) or use the 40x rule (annual income ≥ 40 × monthly rent).
- Auto loans: Lenders prefer total DTI under 50%, including the new car payment.
- Credit cards: Issuers consider DTI when setting credit limits and approval decisions.
7 Proven Ways to Lower Your DTI
- Pay down high-balance debts first. Focus on the debt with the highest monthly payment to reduce your DTI fastest. A $300/month car payment eliminated drops DTI by 6% on a $5,000 income.
- Increase your income. A side income of $500/month reduces a 40% DTI to about 36% with zero debt payoff. Freelance work, overtime, or a raise all count.
- Refinance to lower monthly payments. Extending a loan term reduces the monthly payment even if total cost increases. A 48-month car loan refinanced to 72 months can cut payments by 30%.
- Avoid taking on new debt. Every new monthly payment increases DTI. Delay major purchases until after your mortgage or apartment approval.
- Get a roommate to reduce housing costs. Splitting a $2,000 rent with a roommate drops your housing payment to $1,000 — that alone can reduce DTI by 10+ percentage points. Use our Rent Split Calculator to find a fair split.
- Consolidate debts. Combining multiple payments into one lower-payment loan reduces your total monthly obligation. Balance transfer cards with 0% intro APR work well for credit card debt.
- Pay more than minimums on credit cards. Credit card minimum payments keep your balance (and DTI) high. Paying $200 instead of $50/month eliminates the debt faster and frees up that $50 from your DTI sooner.
Frequently Asked Questions
Does rent count in DTI?
Yes. Your current rent payment is included in your DTI calculation. When applying for a mortgage, lenders replace your rent with the estimated mortgage payment to see your projected DTI.
Does DTI affect my credit score?
No. DTI and credit score are separate metrics. However, the behaviors that cause high DTI (lots of debt, high utilization) often correlate with lower credit scores.
What DTI do I need for an apartment?
Most landlords use the “3x rent” income rule, which means your rent should be no more than 33% of your gross monthly income. In competitive markets like NYC, some landlords require 40x annual income (monthly rent × 40 ≤ annual salary).
Can I get a mortgage with 45% DTI?
It's difficult but possible. FHA loans may accept DTI up to 50% with a strong credit score (580+), significant savings, or a long employment history. Conventional loans typically cap at 43%. VA and USDA loans have more flexible DTI requirements.
Check Your Numbers
See where you stand with our free affordability calculator. Enter your income and debts to get your DTI instantly.