Lenders look at debt-to-income (DTI) to judge how much of your income is already spoken for. It is simple to calculate yourself before you apply.
The formula
DTI = total monthly debt payments / gross monthly income (before tax).
Count: rent or mortgage payment (with property tax and insurance if escrowed), car loans, student loans, minimum card payments, personal loans, child support. Don't count: groceries, utilities, phone, insurance you pay separately.
An example
Gross income $6,000 a month.
- Rent $1,800
- Car loan $450
- Card minimums $150
- Student loan $250
Total $2,650 / $6,000 = about 44%.
How lenders tend to read it
- Under about 36%: generally seen as comfortable.
- Up to 43%: a common ceiling for many mortgage programs.
- Above that: approval gets harder, though some loan types allow more.
Exact limits depend on the lender and loan type, so treat these as rough bands.
Lowering it
- Paying off the smallest loan removes a whole payment from the top line, which usually moves DTI faster than paying a little extra on everything.
- Avoid new financing in the months before a mortgage application.
- Paying down card balances also lowers the minimum payments that count.
In the example, paying off the $450 car loan brings DTI to about 37%.
Free tools
- Debt-to-income ratio calculator: https://smartbudgetsheets.surge.sh/calculators/debt-to-income-ratio-calculator/?utm_source=mataroa
- How much house can I afford: https://smartbudgetsheets.surge.sh/calculators/how-much-house-can-i-afford-calculator/?utm_source=mataroa
- Debt snowball vs avalanche: https://smartbudgetsheets.surge.sh/calculators/debt-snowball-vs-avalanche-calculator/?utm_source=mataroa
- Debt Payoff Planner, up to 8 debts (Payhip): https://payhip.com/b/PtBLU?utm_source=mataroa
- 42 free budget templates, pay what you want ($0 is fine): https://smartbudgetsheet.gumroad.com/l/ngpkrb?utm_source=mataroa
General information, not financial advice. Figures are rounded examples.