Finance
Debt-to-income calculator
One number decides more mortgage applications than credit score does, and it takes about a minute to work out.
What counts as debt
DTI compares recurring debt obligations to gross monthly income. What goes in the numerator is narrower than most people assume — it is contractual debt, not spending:
- Included — mortgage or rent with tax and insurance, car loans and leases, student loans, credit card minimum payments, personal loans, court-ordered maintenance.
- Excluded — groceries, utilities, phone bills, insurance premiums that are not part of housing, childcare, pension contributions, subscriptions, tax.
That exclusion list is why a household can pass DTI comfortably and still feel broke. The ratio measures your obligations to lenders, not your cost of living.
Front-end and back-end
The front-end ratio is housing alone over income. The back-end ratio — usually what people mean by DTI — is all debt over income. Underwriters look at both, but the back-end figure is the one that decides most applications.
The thresholds worth knowing: 36% is conventional guidance, 43% is the traditional qualified-mortgage ceiling in the US, and some government-backed programmes stretch to 50% where there are compensating factors such as large reserves or a high credit score. Above 50%, options narrow sharply.
Moving the number
There are only two levers, and they are not equally easy. Raising income moves the denominator; retiring debt moves the numerator. Retiring debt is usually faster, and which debt you clear matters more than how much.
The right target is the debt with the highest payment relative to balance, not the highest balance or the highest rate. A car loan with $3,000 left but a $400 monthly payment removes $400 from the ratio. A student loan with $30,000 left and a $250 payment removes only $250, at ten times the cost. Paying off the car is the better DTI move even though the interest rate might be lower.
One caution: paying a credit card down to zero without closing it removes its minimum from the ratio while keeping the available credit, which helps utilisation too. Closing the account can hurt your credit score.
Why gross income
DTI uses pre-tax income, which is a genuine weakness of the measure. Two applicants with identical gross income and very different tax positions look identical to it. Someone with high marginal tax and large pension contributions has materially less disposable income than the ratio suggests, and lenders do not adjust for that. Your own budget should.
Common questions
What is a good debt-to-income ratio?
Under 36% is comfortable and meets conventional guidance. Up to 43% is workable for most mortgage products. Above 43% narrows your options considerably, and above 50% is outside almost all mainstream lending.
Do utilities and groceries count?
No. DTI counts contractual debt payments only. Utilities, food, phone, childcare and insurance are living costs, not debt, so they are excluded even though they are unavoidable.
Should I include the mortgage I am applying for?
Yes, for a purchase. Underwriters compute DTI including the proposed housing payment, not your current rent. Put the expected new payment in the housing field to see how the application will actually look.
Which debt should I clear first to improve DTI?
The one with the largest monthly payment relative to its remaining balance. A nearly-paid-off car loan often removes more from the ratio per pound spent than a much larger student loan.