When it comes to getting approved for a mortgage, your debt-to-income ratio carries serious weight. In fact, according to a NerdWallet study, a high DTI ratio was the #1 reason lenders denied mortgage applications in 2022. Let’s break it down!

Key Takeaways:

• Your DTI is just as important as your credit score when applying for a mortgage.
• Lenders use your DTI to decide how much you can borrow and whether you qualify.
• Lenders generally prefer a DTI ratio below 36%.
• You can lower your DTI by paying off debt, boosting your income, or both.

What Is a DTI Ratio?

Your debt-to-income ratio (DTI) is a number lenders look at to see how much of your monthly income goes toward debt. It’s found using a simple formula—the lower your DTI, the better your chances of getting approved for a home loan. Here’s the formula: 

Say you make $7,000 before taxes each month. You owe $350 for your car loan, $250 for student loans, $200 on credit cards, and you’re planning on a mortgage payment of $1,800.

Your total debt = $2,600
Your income = $7,000
Your DTI = ($2,600 ÷ $7,000) x 100 = 37%

That would be your back-end DTI, and this example is just barely within the typical range for most lenders.

Front-End vs. Back-End DTI

There are two types of DTI ratios lenders care about:

What Is a Front-End DTI Ratio?

This includes your expected housing costs (mortgage, property taxes, homeowners' insurance, and mortgage insurance) divided by your gross monthly income. Most lenders like to see this under 28%.

What Is a Back-End DTI Ratio?

This includes all your monthly debts (credit cards, car loans, student loans, and your future mortgage payments). The number to aim for here is below 36%, though some loans allow up to 50% if you meet other criteria. Think of back-end DTI as the "big picture" of your finances.

Why Does Your DTI Ratio Matter?

Lenders use your debt-to-income ratio to gauge risk. If too much of your income is already going toward debt, it raises a red flag. You might be more likely to fall behind on payments if something unexpected comes up.

Missed payments can lead to foreclosure, which is a risk lenders want to avoid. Even if the numbers technically work, lenders want to be confident that your mortgage won’t stretch you too thin.

What Is a “Good” DTI Ratio?

Here’s a quick breakdown by loan type:

Note: Just because you can get approved with a high DTI ratio doesn’t mean you should. Lower is better, both for approval odds and your ability to pay back your mortgage.

How to Calculate Your DTI Ratio

We will be using that formula from earlier, dividing your monthly debt payments by your monthly income and multiplying it by 100. Here's what each of those values should include:

Your Monthly Debts:

• Minimum credit card payments
• Auto loans or leases
• Student loans
• Personal loans
• Alimony or child support
• Your estimated future mortgage payment

Your Monthly Gross Income:

This is your income before taxes. Including:

• Your salary
• Bonuses
• Freelance income (if consistent)
• Child support

Then plug it into the formula, multiply by 100, and you’ve got your percentage.

How to Lower Your DTI Ratio

If your DTI is pushing the limits, don’t panic. Just like your credit score, your DTI ratio can be improved over time. Here are a few ways you can lower your DTI ratio.

Pay Down Debts

Knocking out even one monthly payment can make a big difference. If you’re close to paying off your car or a credit card, it might be worth wrapping that up before applying.

Avoid New Debt

Now’s not the time to buy a new couch on credit or take out a new loan. Keep your finances steady until the homebuying process is complete.

Increase Your Income

Easier said than done, but even picking up a side hustle or freelance work can help tip the ratio in your favor.

Wait And Reassess

If your DTI is over 50%, it might be smart to wait a bit before applying for a mortgage. Use the time to build a stronger financial foundation.

Your DTI gives lenders a snapshot of how comfortably you can afford a new home. And while lenders may have their own limits, the real goal is making sure you’re making a smart decision for your financial future.

So, before you fall in love with that dream home, crunch the numbers. If your DTI could use some work, take the time to fix it. Want help figuring out your DTI or prepping for a mortgage? Click here to connect with a Home Loan Specialist.

Frequently Asked Questions

Check our FAQs for responses to our most popular questions about debt-to-income ratio.

Why does my debt-to-income ratio (DTI) matter when getting a home loan?

At Churchill Mortgage, we use your DTI to evaluate how much of your monthly income goes toward debts — including future housing costs. A lower DTI means you’re in a stronger position to handle your mortgage payments, which improves your approval chances and helps us recommend the right loan program for you.

What’s a good debt-to-income ratio for buying a house?

Most lenders prefer to see a DTI under 36%, but that number can vary depending on your credit score and loan type. At Churchill Mortgage, we help home buyers understand what their specific ratio means and what loan options may still be available — even if they’re slightly above that range.

Can I buy a house with a high DTI ratio?

It’s possible, but it might limit your options. A higher DTI can make lenders cautious, but there are strategies to strengthen your application. A Churchill Loan Officer can review your full financial picture and show you ways to improve your approval odds — whether that’s paying down debt or exploring alternative loan programs.

How can I lower my DTI before applying for a mortgage?

You can lower your DTI by paying off smaller debts, avoiding new credit, or boosting your income. Our team at Churchill Mortgage can help you make a plan to do this strategically — and determine how close you are to mortgage-ready.

Does a good credit score offset a high DTI?

Sometimes, yes. Lenders look at your overall financial health, not just one number. A strong credit score, consistent income, and solid savings can balance out a higher DTI. Churchill Mortgage takes a holistic approach when reviewing applications — we look for reasons to help you qualify, not reasons to say no.