Understanding how to calculate DTI — or debt-to-income ratio — is essential if you're planning to buy a home or refinance your mortgage. Your DTI plays a major role in determining your loan eligibility and how much you can borrow. This guide walks you through everything you need to know, from the basic formula to which debts and incomes to include. We’ll also look at the ideal DTI range for loan approval and how to lower yours if needed.

What is DTI and why does it matter?

Before diving into how to calculate DTI, let’s look at what it is and why it’s important. 

DTI stands for debt-to-income ratio, and it measures how much of your monthly income goes toward debt payments. Lenders use your DTI to evaluate how well you can manage monthly payments and repay borrowed money.

DTI plays a key role in mortgage approval. A high DTI could signal that you’re overextended and may struggle to keep up with your mortgage. A low DTI, on the other hand, reassures lenders that you have room in your budget for additional debt. Most mortgage programs have maximum DTI limits, and some offer better interest rates to borrowers with lower ratios.

The formula: How to calculate DTI

To calculate your DTI, use this simple formula:

DTI = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100

To do this math yourself, you’ll need two key pieces of information:

• Your total monthly debt payments, including housing, loans, credit cards, and other recurring debt
• Your gross monthly income, which is your income before taxes and other deductions

Let’s break down each step.

Step 1: Add up your monthly debt payments

Your total monthly debt includes any recurring debt obligations that appear on your credit report. Here's what to include:

• Monthly mortgage or rent payment
• Auto loan payments
• Student loan payments
• Minimum credit card payments (not the balance, just the minimum)
• Personal loan payments
• Child support or alimony (if court-ordered)
• Other installment debts with fixed monthly payments

Do not include expenses like utilities, groceries, subscriptions, car insurance, or cell phone bills — they’re not considered debt.

For example, let’s say you pay:

• $1,600 for your mortgage
• $300 for a car loan
• $250 for student loans
• $100 for credit card minimums

Your total monthly debt payments would be $2,250.

Step 2: Calculate your gross monthly income

Gross income is the amount you earn before taxes and other deductions. If you're a W-2 employee, this includes your base salary. It might also include bonuses, overtime, or commissions, depending on consistency and how your lender counts them.

If you’re self-employed or a freelancer, gross income means your total income before business expenses. You may need to average your income over the past couple of years based on your tax returns.

Sources of gross income may include:

• Salary or wages
• Overtime or bonuses (if consistent)
• Rental income
• Alimony or child support (if documented)
• Social Security or pension income
• Business income

Say, for example, that you earn $6,500 per month in gross income from your job. That’s the number you’ll use.

Step 3: Divide and multiply

Now, divide your total monthly debt ($2,250 in our example) by your gross monthly income ($6,500 in our example) and multiply the result by 100 to get a percentage.

So, for our example scenario, that would look like this:

$2,250 ÷ $6,500 = 0.346 × 100 = 34.6%

That means your DTI is 34.6%, which is within most lenders’ acceptable range.

What’s a good DTI for a mortgage?

Different loan programs have different DTI thresholds. Here’s a general breakdown of what lenders look for:

• Below 36%: Excellent. You’re likely to qualify for most mortgage programs.
• 36–43%: Acceptable. Many lenders will approve loans in this range, especially with compensating factors like strong credit or large down payment.
• 43–50%: Risky. Some programs, such as VA or FHA loans, may still approve you, but you’ll face more scrutiny.
• Above 50%: Very high. Approval is unlikely unless you reduce your debt or increase your income.

Keep in mind that lenders often calculate both front-end and back-end DTI:

• Front-end DTI: Includes only your housing costs (e.g., mortgage, insurance, taxes)
• Back-end DTI: Includes all monthly debts (housing + other debt)

For most mortgages, lenders focus on the back-end DTI.

How to lower your DTI

If your DTI is too high to qualify for a mortgage — or if you want to improve your chances of approval — you can take steps to lower it:

• Pay down existing debt: Focus on reducing credit card balances or personal loans.
• Avoid new debt: Don’t take on car loans, new credit cards, or installment plans before applying.
• Increase your income: A side hustle, raise, or second job can boost your gross monthly income.
• Refinance or consolidate: Rolling high-interest debts into a lower monthly payment can help reduce your DTI.
• Delay your application: If you're close to paying off a major debt, wait to apply until it's gone from your monthly obligations.

Common DTI mistakes to avoid

When learning how to calculate DTI, don’t fall into these traps:

• Using net income instead of gross: Always use your income before taxes.
• Forgetting minimum payments: You need to count the minimum required credit card payments, not what you actually pay.
• Omitting spousal debts: If you’re applying for a joint mortgage, your spouse’s debts need to be included, too.
• Guessing: Use real numbers, not estimates. Lenders will verify everything with documentation.

When and how lenders calculate DTI

Most lenders check your DTI early in the mortgage process using the financial information you provide on your application. Then, they verify your debts using your credit report and your income using pay stubs, W-2s, tax returns, or other documentation.

Your DTI may also be rechecked before closing, especially if your financial situation changes. That’s why it’s smart to avoid taking on any new debt until after your mortgage closes.

Know your DTI before you apply

Knowing how to calculate DTI puts you ahead of the game when it comes to qualifying for a mortgage. It’s one of the first things lenders look at, and a solid DTI can help you secure a better interest rate and more favorable loan terms. By calculating your DTI early and working to improve it if needed, you can take control of your mortgage application and move forward with confidence.

Ready to compare mortgage rates and see what you qualify for? Start by calculating your DTI — then use our mortgage rate tables to find the best loan for your situation.