Debt-to-Income Ratio: How Mortgage Lenders Measure Monthly Debt Against Income
Debt-to-income ratio basics: how mortgage lenders calculate DTI, which monthly debts count, why limits vary by loan type and how to review your own DTI.
The debt-to-income ratio, or DTI, is one of the numbers mortgage lenders look at when deciding how much a borrower can reasonably take on. The Consumer Financial Protection Bureau defines it as all monthly debt payments divided by gross monthly income, and describes it as one way lenders measure a borrower's ability to manage the payments on the money they plan to borrow.
How is a debt-to-income ratio calculated?
The calculation has two parts. The first is total monthly debt payments, including the expected payment on the new mortgage. The second is gross monthly income, which the CFPB describes as income earned before taxes and other deductions are taken out. Dividing the first by the second and expressing the result as a percentage produces the DTI.
Because the ratio uses gross income, it is not the same as the share of take-home pay that goes to debt, and it will usually look lower than that personal budget figure. Separately, the CFPB advises home shoppers to calculate the total monthly payment for the homes they are considering and to be careful not to fall in love with a home that is more than their budget can handle.
Which debts count toward DTI?
Fannie Mae's Selling Guide, which sets the rules for conventional loans the company buys, lists the monthly obligations that go into the calculation. They include:
- the housing payment on the home being financed, including taxes, insurance and any association dues;
- installment debts, such as auto and student loans, that extend beyond ten months, and shorter ones if they significantly affect the borrower's ability to pay;
- monthly payments on revolving accounts, such as credit cards;
- lease payments, regardless of when the lease ends;
- alimony, child support or maintenance payments that extend beyond ten months; and
- any net loss from a rental property.
Fannie Mae also notes that lenders may apply a more conservative approach than its minimums, such as using a higher minimum payment on a credit card, as long as they apply it consistently.
Why do DTI limits vary by loan type and lender?
The CFPB says different loan products and lenders have different DTI limits. Fannie Mae's guide illustrates how the limits work for one category of loan:
| Fannie Mae conventional loan | Maximum total DTI ratio |
|---|---|
| Manually underwritten | 36% of stable monthly income |
| Manually underwritten, with credit score and reserve requirements met | Up to 45% |
| Underwritten through Desktop Underwriter (DU) | 50% |
Source: Fannie Mae Selling Guide, B3-6-02, Debt-to-Income Ratios.
Those are maximums, not targets, and they are not the only test. Fannie Mae lists exceptions where the maximum may be lower, and government-backed loans follow the requirements of their own agencies. The ratio is also checked again before closing: under the Selling Guide, if new debt or reduced income comes to light after the underwriting decision, the loan may have to be re-underwritten. Iron Hill Brief's guide to mortgage preapproval vs. prequalification covers why buyers are advised to avoid taking on new credit during the mortgage process.
Frequently asked questions
Is DTI based on gross or take-home pay? Gross. The CFPB defines DTI as monthly debt payments divided by gross monthly income, which is income before taxes and other deductions.
Does my DTI include the new mortgage payment? Yes. Fannie Mae's total monthly obligation includes the housing payment for the home being financed, along with other qualifying debts.
How can I estimate my own DTI before applying? Add up the minimum monthly payments on debts like those listed above, add an estimated housing payment and divide by gross monthly income. The home affordability calculator can help a buyer test a price range. Any loan remains subject to the lender's full review and approval.
Sources
- Consumer Financial Protection Bureau, "What is a debt-to-income ratio?" (last reviewed Aug. 28, 2023): https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-to-income-ratio-en-1791/
- Consumer Financial Protection Bureau, "Find the right home" (page last modified Dec. 12, 2024): https://www.consumerfinance.gov/owning-a-home/explore/find-the-right-home/
- Fannie Mae, Selling Guide, B3-6-02, Debt-to-Income Ratios (accessed Oct. 23, 2026): https://selling-guide.fanniemae.com/sel/b3-6-02/debt-income-ratios