# What is a good debt-to-income ratio?

> DTI is monthly debt payments ÷ gross monthly income. Aim for 36% or less, including any new housing payment.

Source: https://www.walletprep.com/learn/debt-to-income-ratio/ · Updated 2026-10-04 · Debt

Your debt-to-income ratio (DTI) is your monthly debt payments divided by your gross monthly income. Lower is better: 36% or less including a new mortgage is a common target, and many mortgage lenders cap DTI somewhere between 36% and 50% depending on the loan.

## Key facts
- **The formula is simple.** Add up all your monthly debt payments, then divide by your gross monthly income. Multiply by 100 to get a percentage. $2,000 in payments on $6,000 of income is a DTI of 33%.
- **What counts as debt.** Mortgage or the new housing payment, car loans, student loans, personal loans, credit card minimums, leases, and alimony or child support you pay. Utilities, groceries, phone bills and insurance premiums usually don't count.
- **Limits depend on the lender and loan.** Each lender and loan type sets its own DTI limit. For Fannie Mae mortgages, the cap is 36% on manually reviewed loans, up to 45% with strong credit and savings, and up to 50% through its automated system.
- **Lowering DTI takes two levers.** You can lower your monthly debt payments, raise your gross income, or both. Paying off a debt or adding steady income moves the ratio the most.

## How to calculate your DTI
Step 1: write down every monthly debt payment. Use the required payment on each loan and the minimum payment on each credit card. Add any child support or alimony you pay.
Step 2: find your gross monthly income. That is your pay before taxes and deductions. If you are paid a salary, divide your yearly salary by 12. If your income changes month to month, lenders usually average it over a longer stretch and ask for proof, like tax returns.
Step 3: divide the payments by the income and multiply by 100. $900 ÷ $4,500 = 0.20, so the DTI is 20%.

## Front-end and back-end ratios
Mortgage lenders sometimes talk about two ratios. The front-end ratio counts only the housing payment. The back-end ratio counts the housing payment plus all your other debts. When people say DTI, they usually mean the back-end number.
The housing payment for a mortgage includes more than the loan itself. It adds property taxes, homeowners insurance, mortgage insurance if you have it, and HOA dues. Leaving those out makes your DTI look lower than what a lender will see.

## What counts as a good DTI
There is no single cutoff. As a rough guide, under 20% leaves lots of room, 20% to 36% is a common comfort zone, and above that lenders often want strong credit and savings before they approve you.
For mortgages sold to Fannie Mae, the standard limit for manually reviewed loans is 36%, which can rise to 45% for borrowers who meet credit score and savings rules. Loans run through Fannie Mae's automated system can go up to 50%. Government-backed loans, like FHA and VA loans, follow their own rules, so ask your lender.

## DTI is about your budget, too
A lender's limit is the most it will allow, not what is comfortable for you. A 45% DTI on gross income can mean more than half of your take-home pay goes to debt and housing, which leaves little room for savings or surprises.
Run the numbers on your take-home pay as well. If the new payment would squeeze your emergency fund and retirement saving to zero, a smaller loan is the safer choice even if you qualify for more.

## How to lower your DTI
Pay off small debts entirely, starting with the ones that have the highest payment for their balance. A credit card with a $100 minimum and a $1,500 balance is a quick win.
Avoid new debt before you apply. Refinancing a loan to a lower payment can help, though a longer term usually costs more interest. On the income side, a raise, steady side income with a track record, or a co-borrower's income can all count, if the lender can verify it.

## A worked example: DTI before and after a mortgage
Chris earns $66,000 a year, so $5,500 a month before taxes. He has a car loan, a student loan and one credit card, and wants a mortgage with a $1,400 monthly payment.

- Car loan payment: $380
- Student loan payment: $220
- Credit card minimum: $100
- Current debt payments: = $700
- DTI today (÷ $5,500): 12.73%
- New mortgage payment: $1,400
- Debt payments with mortgage: = $2,100
- DTI with mortgage: 38.18%
- Pay off the card: −$100
- Debt payments, card paid off: = $2,000

1. Chris's debt payments are $380 + $220 + $100 = $700. $700 ÷ $5,500 = 12.7% DTI today.
2. With the $1,400 mortgage, payments are $2,100. $2,100 ÷ $5,500 = 38.2%, just over the common 36% target.
3. If he pays off the card first, payments drop to $2,000. $2,000 ÷ $5,500 = 36.4%, close to the target and a stronger application.

## Common mistakes
- **Using take-home pay.** DTI uses gross income. Dividing by take-home pay makes your ratio look worse than what the lender sees, which can scare you off a loan you could handle.
- **Counting balances instead of payments.** DTI looks at monthly payments. A $15,000 student loan with a $160 payment counts as $160, not $15,000.
- **Borrowing up to the limit.** Qualifying at 45% doesn't mean 45% fits your life. Check the payment against your take-home budget, savings goals and emergency fund before you sign.

## Questions people ask
### Does rent count in debt-to-income ratio?
For a mortgage application, your current rent usually isn't counted, because the new housing payment replaces it. Some other lenders and landlords look at rent separately when deciding what you can afford.

### Does DTI affect my credit score?
No. Your income isn't on your credit report, so DTI is not part of your score. Lenders look at it separately, alongside your credit score, when you apply.

### What DTI do I need for a car loan or personal loan?
Each lender sets its own limit, and they don't always publish it. A lower DTI generally gets you approved more easily and at a better rate, so lowering it before you apply can pay off.

### Is 50% DTI too high?
For most budgets, yes. Half of your gross pay going to debt leaves little after taxes for everything else. Some mortgage programs allow it, but it leaves you exposed if your income drops.

## Do this today
List every monthly debt payment from your statements and add them up. Divide by your gross monthly income from your pay stub. If you are planning a big loan, add the new payment and see where you land.

## Sources
- [CFPB: What is a debt-to-income ratio?](https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-to-income-ratio-en-1791/)
- [Fannie Mae Selling Guide B3-6-02: Debt-to-Income Ratios](https://selling-guide.fanniemae.com/sel/b3-6-02/debt-income-ratios)

_General education, not personalized financial, tax or legal advice. Figures are examples. Check current rates and limits before you act._