Understanding Debt-to-Income Ratio
Debt-to-income ratio (DTI) is the single most important number in mortgage underwriting after credit score. It tells the lender what percentage of your gross monthly income already goes to required debt payments — and how much room you have for a mortgage.
Front-End vs Back-End
Front-end DTI only counts housing costs (PITI). Back-end DTI counts housing plus every other monthly debt — auto loans, student loans, credit cards, alimony. Lenders care most about the back-end number.
Standard Limits by Loan Type
Conventional loans typically cap back-end DTI at 45%. FHA loans go up to 43% with automated approval and as high as 50–57% with strong compensating factors. VA and USDA loans use residual income tests in addition to DTI.
Quick Wins to Lower DTI
Pay off the smallest installment loan completely (a $300 payment removed often beats a $2,000 balance reduction), avoid opening new credit lines in the 6 months before applying, and document side income with two years of tax returns so it counts.