Debt-to-income ratio: what lenders measure
Key takeaways
04 · ideas- Front-end DTI: housing costs only. Back-end: all debt payments
- 43% back-end DTI is a common threshold for qualified mortgages
- DTI uses gross (pre-tax) income, not take-home pay
- Student loans, car payments, and minimum card payments all count
Basic level
The essentials · 1 min
Debt-to-income ratio (DTI) measures monthly debt payments as a percentage of gross monthly income.
- Front-end DTI: Housing costs only (mortgage principal, interest, taxes, insurance) divided by gross income
- Back-end DTI: All monthly debt payments (housing + car + student loans + card minimums) divided by gross income
- Front-end: $1,600 / $7,500 = 21.3%
- Back-end: $2,230 / $7,500 = 29.7%
Intermediate level
How it applies · 1 min
Thresholds that appear in lending guidelines
| Conventional mortgage | FHA loan | |
|---|---|---|
| Front-end | 28% preferred | 31% preferred |
| Back-end | 36-43% | 43-50% |
The CFPB established 43% back-end DTI as a threshold for "qualified mortgages" — loans with certain consumer protections under Dodd-Frank.
What counts toward DTI: Minimum credit card payments, auto loans, personal loans, student loans, child support and alimony, housing costs.
What does not count: Utilities, groceries, insurance, subscriptions, cell phone bills.
Advanced level
The math, step by step · 1 min
DTI and loan pricing
DTI affects not just approval but pricing. Conventional mortgage guidelines (Fannie Mae and Freddie Mac) use a matrix where both credit score and LTV/DTI combinations determine loan-level price adjustments — fees that translate into a higher interest rate for riskier profiles.
The VA loan program supplements DTI with a residual income test: the income remaining after all obligations are paid. A veteran with $7,500 income and $4,000 in total obligations has $3,500 residual, which may qualify at a higher DTI than conventional thresholds.