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Your debt-to-income ratio is a simple way to compare the amount of money you owe each month to the amount you earn. Calculating your DTI is actually pretty easy; you just add all your monthly debt payments and divide that by your monthly gross income.

Got it? Now, let’s dive deeper. There are two different types of DTI ratios that mortgage lenders look at when you apply for a home loan: front-end and back-end. While it’s helpful to know both types of DTI, the back-end ratio is what will give lenders the best idea of how much house you can afford.

Front-end debt-to-income ratio

First up is the front-end ratio. This number is all about housing expenses, so it includes your monthly mortgage or rent payment, property taxes, homeowners insurance and any homeowners association fees. Once you’ve tallied that up, the total gets divided by your gross monthly income.

Back-end debt-to-income ratio

The other important number is your back-end ratio, which provides a bigger picture of your monthly debts compared to how much you make. It factors in everything that shows up on your credit report, including those same front-end housing costs, plus other bills like credit card payments, auto loans and student loans. When you’ve got that number, it gets divided by—you guessed it—your gross monthly income.

Let's look at an example to better understand how the debt-to-income ratio works when applying for a mortgage.

Meet Emily, a graphic designer who earns $5,000 a month and is interested in buying a home. She needs to calculate her DTI to determine if she qualifies for a home loan. Here's how it breaks down:

So, with the above debts in mind, Emily can now calculate her DTI using the below formula:

DTI = (Total Monthly Debts / Monthly Gross Income) x 100

Emily's DTI calculation would be ($1,750 / $5,000) x 100 which equals to a DTI of 35%.

Emily's back-end DTI ratio of 35% is within the acceptable range for most lenders, indicating she is likely to qualify for the mortgage.

When you submit mortgage applications, lenders look at your DTI to make sure you’re financially stable and to see how much more debt you can take on while still making your monthly payments. The lower your DTI, the better your chances are of getting approved and locking in a better interest rate. A higher DTI, however, means you’ll be less likely to qualify.

The ideal DTI ratio

Wondering what’s a good DTI ratio for a mortgage? Lenders usually like to see a number that’s lower than 36%, but up to 43% is still considered pretty good. If you have other things going for you, like a substantial amount in savings, some lenders will even consider a DTI of up to 50%.

Figuring out your debt-to-income ratio can help you know what to expect when you apply for a home loan. If you’re applying with your spouse or partner, their debts and income will get factored into the number, too.

Add it all up

Just like our friend Emily in the example above, you’ll want to include your mortgage payment or rent, car loans, student loans and any credit card payments as well as child support or alimony. You don’t have to worry about other expenses like groceries and utilities.

Divide monthly payments by gross income

Now, take that total and divide it by your gross monthly income—that’s the amount you earn before taxes and other deductions. Your result will come out as a decimal figure.

Convert the result to a percentage

You’re looking for a percentage, so multiply the decimal by 100 to get your DTI ratio.

When you’re in the market for a mortgage, your debt-to-income ratio is a pretty big deal, and each loan type has its own requirements. Keep in mind, lenders will look at your DTI ratio within the context of your full financial profile, so there might be wiggle room if your DTI ratio isn’t as high as you’d like.

FHA loans

FHA loans are perfect for first-time buyers and give a little more grace when it comes to DTI ratios. Less than 43% is ideal, but exceptions can be made.

USDA loans

Got your eye on a house in the countryside? USDA loans are best for buyers looking to live in rural areas, and they typically allow for a DTI ratio of 41% or less. There can even be exceptions of up to 44%.

VA loans

Designed for active-duty service members, veterans and their families, VA loans may accept a ratio of up to 60% (though less than 41% is preferred) and don’t require a down payment.

Conventional loans

While there’s no set requirement for conventional loans, a DTI of under 36% is your best bet for getting approved. If you have a good bit of savings or other forms of financial security, you might be able to get away with about 43%.

Worried about having a high DTI? Improving your ratio can take time and some serious discipline, but you do have options. By keeping a close eye on your debt and income each month, you can push your ratio in the right direction and boost your chances of scoring loan terms that work in your favor. Here are some tips to lower your debt to income for a mortgage:

1. Tackle smaller debts first

   Paying off existing debt is the fastest way to lower your debt-to-income ratio, and starting small can be a smart strategy. If it’s not in your budget to pay off a debt in full, making more than your minimum payment each month can also help.

2. Consider a debt consolidation mortgage refinance

   This involves refinancing your existing mortgage into a new one that includes your other debts. It can potentially lower your overall monthly payments and consolidate multiple debt payments into one, making it easier to manage and possibly reducing your DTI ratio. Just be sure to review the terms carefully to ensure this move makes financial sense in the long run.

3. Boost your income

   That promotion you've been eyeing? Now's the time to go for it! Increasing your earnings, whether it's by moving up at your current job, taking on a part-time gig or freelancing, can really help lower your DTI for a home loan.

4. Add a co-borrower

   Buying a home with your spouse or partner? If they have a low DTI ratio, adding them to the loan could lower your total household ratio and increase your chances of getting approved.

5. Add a mortgage co-signer

   It might be time to phone a friend or family member. If someone you trust will co-sign your mortgage loan, their income and debts will also count toward your DTI ratio. Unlike a co-borrower, a co-signer won’t have an ownership interest in the property.