Your debt-to-income (DTI) ratio is one of the most important factors mortgage lenders consider when evaluating your loan application. Along with your credit score, this percentage helps lenders determine whether you can handle additional debt while managing existing financial obligations.
A lower DTI ratio makes you a more attractive borrower, increasing your chances of mortgage approval. Understanding how to calculate and improve your DTI can help you secure better loan terms.
What Is Debt-to-Income (DTI) Ratio?
Your DTI ratio measures the percentage of your gross monthly income spent on debt payments, including:
- Mortgage or rent
- Auto loans
- Credit card minimum payments
- Student loans
- Personal loans
- Child support or alimony
Lenders use this ratio to assess your financial health. A high DTI suggests you have too much existing debt, which could make it harder to qualify for a mortgage loan.
How to Calculate Your Debt-to-Income Ratio
Before applying for a mortgage, it’s important to calculate your DTI. The process is straightforward:
- Add Up Monthly Debt Payments
Include all fixed obligations like rent or mortgage, auto loans, student loans, and credit card minimums. Exclude variable expenses like groceries and utilities. - Divide by Gross Monthly Income
Take your total monthly debt and divide it by your pre-tax income. If applying for a mortgage with a co-borrower, combine both incomes and debts. - Convert to a Percentage
Multiply the result by 100 to get your DTI percentage.
Example Calculation
| Debt Payments | Monthly Amount |
| Rent/Mortgage | $1,350 |
| Car Loan | $250 |
| Credit Card Minimum | $300 |
| Total Debt | $1,900 |
Gross Monthly Income: $5,000
DTI Calculation: ($1,900 ÷ $5,000) × 100 = 38%
What Is a Good Debt-to-Income Ratio for a Mortgage?
Lenders prefer borrowers with a DTI below 43%, though most favor applicants with a ratio under 36%. Ideally, no more than 28% of your gross income should go toward housing costs.
| DTI Ratio | Loan Approval Likelihood |
| Below 36% | Excellent – Strong approval chances |
| 36% – 43% | Acceptable – May qualify with good credit |
| 44% – 50% | Possible – Requires compensating factors |
| Above 50% | High risk – Likely to be denied |
Some lenders allow DTIs up to 50% for borrowers with strong credit, significant savings, or high earning potential. However, a lower ratio increases your chances of approval and better loan terms.
How to Improve Your DTI Ratio
Lowering your DTI can help you qualify for a mortgage and improve your financial stability. Consider these strategies:
- Pay down high-interest debt – Focus on credit card balances and personal loans first.
- Increase your income – A higher salary or side income lowers your DTI percentage.
- Avoid new loans – Taking on additional debt before applying for a mortgage can hurt your approval chances.
- Refinance existing loans – A lower interest rate or extended loan term can reduce your monthly obligations.
Bottom Line
Your debt-to-income ratio plays a key role in mortgage loan approval. Understanding your DTI and taking steps to lower it can improve your chances of securing the best loan terms.
If you’re ready to start the homebuying process, Loan Pronto can help. Get a free rate quote or complete our online loan application for pre-approval.
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