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Your Guide to Buying a Home

Everything you need to know to buy a home without an agent.

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Debt-to-Income Ratio

The Debt-to-Income (DTI) ratio is a metric used by lenders to determine a potential borrower’s ability to manage monthly payments and repay debts. When it comes to homebuyers looking for a loan, the DTI ratio is especially crucial as it factors into the approval process for a mortgage. Lenders will evaluate your debt-to-income ratio (DTI), which compares your total monthly debts (like car loans, student loans, medical debt, and credit card payments) to your income. Lowering your DTI can help you qualify for a better mortgage.

Usually you don’t calculate your DTI yourself

You don’t have to manually calculate your DTI yourself. Your lender will figure this out. A lot of lenders don’t even mention DTI to buyers unless there is a problem with their DTI ratio – too much debt compared to income.

Typically you don’t need to know any more about DTI unless you’re on the border or over the amount to qualify. But if you are interested, especially if your lender mentioned your DTI is close or over, here are some details for you to look at to help lower your DTI to help improve your mortgage options. 

Calculate your DTI.

This is your monthly based on what your monthly expenses are divided by your income.

Create a list of all the monthly fees you currently pay:

  • rent/mortgage
  • car loan
  • student loans
  • medical bills
  • credit cards
  • HOA fees
  • anything else

Create a list of your monthly income sources:

  • W-2s or self-employed income
  • Rental income
  • Royalties
  • Retirement distributions
  • Social Security

The formula is: add up your monthly expenses, divide by your monthly gross income (pre-tax), and multiply by 100 to get your DTI ratio percent.

This includes the buyer’s estimated monthly mortgage payment (including principal, interest, property taxes, homeowners insurance, and any homeowners association fees) plus any other monthly debt obligations, such as credit card payments, car loans, student loans, and other personal loans.

What Lenders want

Lenders will want something around 40% DTI and typically no more than 44%, but lender requirements can vary depending on a lot of factors. This is a good discussion to have with your lender!

Types of DTI
 Front-End DTI

This ratio only includes housing-related expenses (mortgage payments, insurance, property taxes, etc.) divided by your gross monthly income. Lenders typically prefer this number to be no more than 28%.

Back-End DTI

This encompasses all debt obligations, not just housing-related expenses. Lenders usually prefer this ratio to be under 36% but might accept higher ratios up to 43% or even more in certain cases.

Why DTI Matters
Loan Qualification

A lower DTI ratio improves your chances of qualifying for a home loan. Lenders view a lower DTI as an indication that you are less likely to face difficulties making mortgage payments.

Loan Terms

Borrowers with lower DTI ratios may be offered more favorable loan terms, such as lower interest rates.


Understanding your DTI can help you figure out how much house you can afford without over-leveraging yourself.

Buyers can improve their DTI by increasing their income, paying down debt, or both, to put themselves in a stronger position for purchasing a home.

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