Quick answer: Debt-to-income ratio, or DTI, compares required monthly debt payments with gross monthly qualifying income. It helps a lender estimate how much of a borrower’s income is already committed before the new mortgage payment is added.
How is DTI calculated?
Add the proposed housing expense and other qualifying monthly obligations, then divide that total by gross monthly income. For example, $3,000 of qualifying monthly obligations divided by $8,000 of gross qualifying income produces a 37.5% DTI.
The housing expense may include principal, interest, property taxes, homeowners insurance, mortgage insurance, homeowners association dues, and certain assessments. Other obligations may include auto loans, student loans, credit-card minimums, personal loans, alimony, child support, and other required payments.
What is not always included?
Utilities, food, gasoline, voluntary retirement contributions, and many everyday living expenses generally do not appear in the mortgage DTI calculation. That is why the maximum ratio approved by underwriting may be higher than the payment that feels comfortable in a real household budget.
Is there one maximum DTI?
No. Limits vary by program and the automated underwriting result. Credit history, cash reserves, down payment, income stability, property type, and other compensating factors can affect the decision. Some debts may also be excluded when another party or a documented business has made the payments under applicable guidelines.
Use the mortgage calculators to build a personal budget, and read why preapproval should come before home shopping.
DTI is an underwriting measurement, not a recommendation to spend the maximum amount approved.