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Front-end vs back-end
- Front-end (housing) ratio: housing payment (principal, interest, property tax, insurance, HOA, mortgage insurance) ÷ gross monthly income.
- Back-end ratio: housing plus all other minimum debt payments (car, student loan, card minimums, personal loans, child support) ÷ gross monthly income. Utilities, groceries and insurance premiums are not counted.
Common DTI guidelines
| Guideline | Typical limit | Where it comes from |
|---|---|---|
| 28/36 rule | 28% housing / 36% total | Long-standing rule of thumb |
| Benchmark often cited | 43% | CFPB guidance |
| Conventional (automated underwriting) | Up to 50% | Fannie Mae Selling Guide |
| FHA | Often 43%, higher with compensating factors | HUD Handbook 4000.1 |
Worked example
Gross pay $78,000 a year = $6,500 a month. Housing $1,800 → front-end 27.7%. Add a $350 car payment and $150 in card minimums: $2,300 ÷ $6,500 = 35.4% back-end. At 43% the total debt allowed is $2,795, leaving $495 of room.
How to lower DTI
Pay off small balances entirely (removing the minimum payment), avoid new financing before applying, or add a co-borrower's income. Stretching a car loan lowers the payment but costs more interest.
Sources and assumptions
Related
Frequently asked questions
How do you calculate debt-to-income ratio?
Add up monthly debt payments, divide by gross (pre-tax) monthly income, and multiply by 100.
What debts count in DTI?
Housing costs and minimum payments on loans, credit cards, alimony and child support. Utilities, phone bills and groceries do not count.
What DTI do I need for a mortgage?
Many lenders prefer 36% or less; conventional loans can go up to 50% with automated approval, and FHA often allows 43% or more.
Is DTI based on gross or net income?
Gross income, before taxes and deductions.