How do you calculate dti for mortgage

Your debt-to-income ratio, or DTI, is the percentage of your monthly gross income that goes toward paying your debts, and it helps lenders decide how much you can borrow.

How debt-to-income ratio is calculated

Lenders calculate your debt-to-income ratio by dividing your monthly debt obligations by your pretax, or gross, monthly income.

DTI generally leaves out monthly expenses such as food, utilities, transportation costs and health insurance, among others.

You’ll want the lowest DTI possible not just to qualify with the best mortgage lenders and buy the home you want, but also to ensure you’re able to pay your debts and live comfortably at the same time.

Types of debt-to-income ratios

Also known as a household ratio, front-end DTI is the dollar amount of your home-related expenses — your future monthly mortgage payment, property taxes, insurance and homeowners association fees — divided by your monthly gross income.

Your back-end DTI includes all the other debts you pay each month — such as credit cards, student loans, personal loans and car loans — in addition to home-related expenses. Back-end ratios tend to be higher, since they take into account all of your monthly debt obligations.

Say your monthly gross income is $7,000, and your housing expenses are $1,800. Your front-end, or household ratio, would be $1,800 / $7,000 = 0.26 or 26%.

To get the back-end ratio, add up your other debts, along with your housing expenses. Say, for instance, you pay $350 on a car loan, $250 on student loans and $200 toward credit cards each month. Your monthly housing expenses plus debt payments would be $2,600. Your back-end ratio would be $2,600 / $7,000 = 0.37 or 37%.

Which DTI ratio matters more?

While mortgage lenders typically look at both types of DTI, the back-end ratio often holds more sway because it takes into account your entire debt load.

Lenders tend to focus on the back-end ratio for conventional mortgages — loans that are not backed by the federal government.

For government-backed mortgages, such as FHA loans, lenders will look at both ratios and may consider DTIs that are higher than those required for a conventional mortgage.

Looking for a mortgage? Get the best rates when lenders compete for your business

Answer a few questions and get personalized rate quotes from NerdWallet's top lenders in minutes.

What is a good DTI ratio?

A good target for a front-end DTI ratio is below 28%, and a good target for a back-end DTI is below 36%.

But you can qualify for a mortgage with a higher DTI. The requirement will vary by the lender and type of mortgage.

Ideally, though, you’ll want to keep your DTIs as low as possible, regardless of lenders’ limits. Paying down debt will help improve your credit score, and a higher credit score and lower DTI ratio will help you get a better mortgage interest rate.

DTI isn't a full measure of affordability

Although your DTI ratio is important when getting a mortgage, the number doesn't tell the whole story about what you can afford.

DTIs don't take into account expenses such as food, health insurance, utilities, gas and entertainment, and they count your income before taxes, not what you take home each month.

You’ll want to budget beyond what your DTI labels as “affordable,” and consider all your expenses compared with your actual take-home income.

The higher your DTI ratio, the more likely you are to struggle with qualifying for a mortgage and making your monthly mortgage payments.

To lower your DTI ratio, pay off as much of your current debt as possible before applying for a mortgage. In most cases, lenders won’t include installment debts like car or student loan payments as part of your DTI if you have just a few months left to pay them off.

Avoid taking on more debt

Don't make any big purchases on credit cards before you buy a home, for example.

If your debt-to-income ratio is exceptionally high — say 50% or more — it probably makes sense to wait to make a home purchase until you've reduced the ratio.

Before you sit down with a lender, use a mortgage calculator to help figure out a reasonable mortgage payment for you.

The lower your debt-to-income ratio, the safer you are to lenders — and the better your finances will be.

Your debt-to-income ratio plays a large role in whether you’re able to qualify for a mortgage. Known in the mortgage industry as a DTI, it reflects the percentage of your monthly income that goes toward debt payments and helps both you and lenders determine how much house you can afford. To lenders, it’s just as important as your credit score and job stability.

Lenders calculate your debt-to-income ratio by dividing your monthly debt obligations by your pretax, or gross, income. Most lenders look for a ratio of 36% or less, although there are exceptions when the ratio can be higher.

Getting ready to buy a home? We’ll find you a highly rated lender in just a few minutes.

Enter your ZIP code to get started on a personalized lender match.

Mortgage approval: What’s behind the numbers in our DTI calculator?

Your debt-to-income ratio matters when buying a house. It’s one way lenders decide how much mortgage you can handle and how likely you are to pay back the loan. DTI is calculated by dividing your monthly debt obligations by your pretax, or gross, income.

In most cases, lenders want total debts to account for 36% of your monthly income or less. Nonconventional mortgages, like FHA loans, may accept higher a DTI ratio, but conventional mortgages may not be as flexible.

Lenders consider low DTI as important as having a stable job and a good credit score. When evaluating your mortgage application, DTI tells lenders how much of your income is already spoken for by other debts. If the percentage is too large, it’s a clue you may have trouble paying your monthly mortgage payments, and lenders will be reluctant to approve your loan.

Hate surprises? Estimating your DTI with the NerdWallet calculator before submitting your mortgage application can help you understand how much house you can afford.

How the debt-to-income calculation works

If you were to calculate your DTI on paper, it would look something like this:

Monthly debt payments ÷ Pre-tax income = Debt-to-Income ratio (expressed as a percent)

But who wants to do all that math? The NerdWallet Debt-to-Income Ratio Calculator crunches the numbers for you.

Simply fill in each of the fields with your best estimate for each type of monthly debt. You’ll see your current DTI percentage and how it measures up to what lenders are looking for.

How to use our debt-to-income ratio calculator

• If your housing-related monthly debts are below 28%, you may qualify for a larger loan amount than originally expected

• If your total debts are above 36%, it may explain why you weren’t approved despite good credit

• If your DTI is 50% or above, you may have to pay down a substantial portion of your debts before you can purchase a home

What’s included in your DTI ratio?

Our tool calculates your back-end DTI ratio using potential mortgage payments and the following recurring debts:

• Minimum credit card payments

• Child support and alimony

• Personal loan or other monthly debts

Of course, these probably aren’t your only monthly expenses. Your back-end DTI ratio can also include what you spend on food, utilities, gas, insurance or entertainment, in addition to proposed mortgage payments. Although lenders may not inspect your back-end ratio to this detail, it’s important to look carefully at these costs so your true monthly financial obligations are represented.

Ideally, your total DTI ratio should be under 36%. Keep this in mind when deciding what “affordable” means for you.

If the calculator shows a DTI over 36%, don’t be too discouraged: you may still have options. And knowing where you stand before filling out a mortgage application can save you a lot of time, money and heartache.

Achieve a lower debt-to-income ratio by:

• Increasing your income with a side hustle

• Reducing expenses and using the extra cash to pay off debts

Debt-to-income ratio is different than credit utilization ratio, which measures how much credit you’re using versus how much is available to you. But reducing credit utilization will typically improve your DTI.

When can DTI be higher than 36%?

Some mortgages such as those offered by the FHA, “have certain, more stable features” that make it more likely you’ll be able to afford your loan, according to the CFPB. Current FHA loan requirements allow for a total DTI ratio of up to 50% or less.

Both small lenders and large banks may offer loan options at higher DTI percentages. Be sure to compare mortgage loans from several lenders to find the best option for your financial needs.

What is not included in debt

When calculating DTI do you use gross or net income?

What is a good DTI ratio?

How do you calculate front