How DTI is calculated
Your debt-to-income ratio is your monthly debt payments divided by your gross monthly income, which is income before taxes and deductions. Lenders look at two versions:
- Front-end DTI = housing payment ÷ gross monthly income. The housing payment includes principal, interest, property tax, homeowners insurance, mortgage insurance and HOA or common charges.
- Back-end DTI = (housing payment + all other monthly debts) ÷ gross monthly income. This is the number lenders use to approve a loan.
The calculator also runs the formula backward. To hit a target ratio, your debts must be no more than target × income, so the amount to cut is your debts minus target × income. Or your income must be at least debts ÷ target.
Worked example
You earn $8,500 a month before taxes. The home you want would cost $2,600 a month all-in. You also pay $450 on a car, $300 on student loans and $120 in card minimums, so $870 in other debts.
- Front-end: $2,600 ÷ $8,500 = 30.6%
- Back-end: ($2,600 + $870) ÷ $8,500 = $3,470 ÷ $8,500 = 40.8%
That is above Fannie Mae's 36% limit for manual underwriting. To get to 36%, total debts must fall to $3,060, so you'd need to cut $410 a month, for example by paying off the car loan. Otherwise your gross income would need to be about $9,639 a month ($115,667 a year). At 40.8% you could still qualify through Fannie Mae's Desktop Underwriter, or through manual underwriting with the credit score and reserves its Eligibility Matrix requires.
| Underwriting path | Maximum total DTI |
|---|---|
| Manual underwriting | 36% |
| Manual, meeting Eligibility Matrix credit score and reserves | 45% |
| Desktop Underwriter (DU) | 50% |
What counts, and what doesn't
Fannie Mae counts the housing payment on your home, payments on other homes you own, installment loans with more than ten months left (and shorter ones if they make a real dent in your budget), revolving accounts such as credit cards, lease payments, alimony and child support with more than ten months left, other recurring obligations, and any net loss on rental property.
Utilities, groceries, phone and internet, commuting and insurance you pay outside your mortgage don't count. That is why a DTI that passes can still feel tight. The ratio measures what a lender can see, not your whole budget.
Edge cases
- Use the minimum payment on credit cards, even if you pay the balance in full.
- Lenders have their own rules for counting bonus, commission and self-employment income. Enter a conservative monthly figure.
- Alimony can sometimes be subtracted from income instead of added to debts. Ask your lender which way they treat it.
What to do next
Turn your ratio into a price range with the home affordability calculator, and read how lenders and co-ops calculate DTI. If your credit is the weak spot, see what credit score you need. When the numbers work, the next step is a mortgage pre-approval.