Your debt-to-income (DTI) ratio plays a major role in your ability to qualify for a mortgage and secure favorable rates. A high DTI can limit your loan options or lead to higher interest costs. This guide explains practical steps you can take to lower your DTI, improve your financial profile, and boost your mortgage approval odds.

What is DTI and why does it matter?

DTI, or debt-to-income ratio, is a measure lenders use to assess your ability to manage monthly payments and repay debt. It’s calculated by dividing your total monthly debt payments by your gross monthly income and expressing the result as a percentage.

For example, if you earn $6,000 per month before taxes and have $2,400 in total monthly debt payments, your DTI is 40% (2,400/6,000). Lenders view DTI as a critical factor because it helps them evaluate risk. A high DTI suggests you may be stretched too thin financially, while a lower DTI signals more flexibility and lower default risk.

Most mortgage lenders look for a DTI below 43%, though many prefer 36% or lower for conventional loans. FHA loans may allow DTIs up to 50% in some cases, but a lower DTI typically leads to better loan terms and higher approval odds.

How to calculate your DTI

Before you can lower your DTI, you need to know where you stand. To calculate your DTI, follow these steps:

1. Add up all of your monthly debt payments, including:
   
   1. Minimum credit card payments
   2. Student loan payments
   3. Auto loans or leases
   4. Personal loans
   5. Existing mortgage or rent (if applicable)
   6. Any other installment or revolving debt

2. Divide the total by your gross monthly income (before taxes or deductions)
3. Multiply the result by 100 to get your DTI percentage

Example:

• Monthly debt payments = $2,000
• Gross monthly income = $5,500
• DTI = ($2,000 / $5,500) × 100 = 36.4%

Once you know your current DTI, you can set a realistic target and work toward improving it.

Step 1: Pay down existing debt

One of the most direct ways to lower your DTI is by reducing the amount of monthly debt you carry. Start by focusing on debt with high monthly payments or high interest rates.

Here are a few strategies:

• Make extra payments on credit cards or loans with high balances
• Use the debt snowball method (pay off your smallest debts first) or debt avalanche method (tackle your highest-interest debt first)
• Consolidate multiple debts into a lower-interest personal loan to reduce monthly obligations
• Avoid taking on any new debt while preparing to apply for a mortgage

Even a small reduction in monthly payments can have a meaningful impact on your DTI and improve your financial standing with lenders.

Step 2: Increase your income

Raising your gross monthly income is another powerful way to lower your DTI, since your income is the denominator in the DTI formula. While it may not happen overnight, there are steps you can take to boost your earnings.

Consider the following options:

• Take on a part-time job or freelance work
• Ask for a raise at your current job
• Monetize a hobby or side skill
• Rent out a room in your home or start a short-term rental
• Sell unused assets or items for extra cash

Keep in mind that lenders typically want to see consistent income over time, so you’ll need to document any new income sources clearly and show they’re stable and verifiable.

Step 3: Refinance or restructure your debt

If you’re struggling with high-interest or high-payment debts, refinancing can help reduce your monthly obligations and improve your DTI.

Here’s how refinancing can help:

• Refinance student loans to lower your monthly payment
• Refinance a car loan to extend the term and reduce the monthly cost
• Refinance a mortgage to lower your interest rate or switch to a longer term

If refinancing isn’t an option, consider contacting your lenders to negotiate a different payment plan. Some creditors offer hardship plans or income-driven repayment options that can lower your monthly minimums temporarily or permanently.

Step 4: Avoid new debt before applying

While it might seem obvious, one of the best ways to lower your DTI is to avoid taking on any new debt — especially before applying for a mortgage. New loans or credit cards will increase your monthly debt payments and raise your DTI, possibly pushing you over the lender’s threshold.

Here’s what to avoid in the months leading up to your mortgage application:

• Opening new credit cards
• Financing a new car
• Taking out personal or installment loans
• Co-signing on someone else’s debt

Not only can these actions increase your DTI, but they may also impact your credit score or raise red flags for underwriters. If you're serious about buying a home, try to keep your financial picture as stable and clean as possible.

Step 5: Reduce or eliminate recurring obligations

Some debts may not seem like “real” loans but can still impact your DTI. Subscription services, buy-now-pay-later purchases, or retail installment plans can add up and raise your monthly obligations.

Take a hard look at your recurring expenses and cancel or pay off anything that isn’t essential. Even reducing your minimum credit card payments by a small amount could make a difference.

Additionally, some debts may be excluded from DTI calculations if they’re paid off or have fewer than 10 months of payments remaining. As a result, paying down short-term debts may provide a faster path to improvement.

How quickly can you lower your DTI?

The time it takes to lower your DTI depends on your current financial picture and how aggressively you tackle the problem. With a strategic focus — like paying off a credit card, picking up a side gig, or refinancing a car loan — you could improve your DTI within a few weeks or months.

Lenders will often reassess your DTI at multiple stages in the loan process, so even if your ratio isn’t ideal when you first apply, demonstrating consistent improvement may still work in your favor.

Steps to take as you lower your DTI

Your debt-to-income ratio is one of the most important factors lenders consider when evaluating your mortgage application. A lower DTI means lower risk for lenders and more options for you — including better rates, higher approval chances, and potentially a bigger loan.

By paying down debt, increasing income, avoiding new financial obligations, and making strategic money moves, you can lower your DTI and strengthen your overall mortgage readiness.

Want to see what’s on the table for you based on your current financial situation? To compare mortgage rates based on factors that are specific to you — like your credit score and the price and location of the house you want to buy — use our mortgage rate comparison tables.