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What debt-to-income ratio do you need for a mortgage?

What we'll cover

  • How to calculate your debt-to-income ratio

  • Different ways DTI affects homebuyers

  • Methods of improving a debt-to-income ratio

As you shop for a home, you aren't the only one who is reviewing your bank account. Mortgage lenders also examine your finances to better understand what kind of borrower and spender you are. One important aspect a lender looks for is your debt-to-income (DTI) ratio. Here are some ways to determine if yours is in good shape.

What is debt-to-income ratio?

Debt-to-income ratio is an industry standard measure to establish how much house you can afford. Expressed as a percentage, it shows how much of your money goes toward debt, giving you and lenders an idea of how much you can dedicate toward paying off a mortgage each month. Generally, if you're getting ready to buy a home or refinance a loan , the lower your DTI, the better.

Use the calculator below to input your numbers and figure out your DTI.

How debt-to-income ratio is calculated

If you'd prefer to calculate your DTI by hand, follow these simple steps:

  1. Add up all your monthly expenses. Include things like current rent or mortgage payments, car payments, student loans, child support, credit card minimums and any other recurring payments you make month-to-month that go toward debt.

  2. Next, divide that amount by your monthly gross income (aka your income before taxes, retirement contributions, etc., have been deducted).

  3. The resulting figure is your debt-to-income ratio (don't forget to move the decimal over two places). It shows what percent of your income goes toward debt.

Not all monthly expenses should be included when calculating your DTI. These common monthly payments should not be added to your debt total:

  • Utilities, like water, garbage, electricity or gas bills

  • Car insurance

  • Cable

  • Cell phone

  • Health insurance

  • Groceries, food or entertainment

If you aren't happy with your current DTI, remember it isn't a fixed number.

What is a good debt-to-income ratio?

Typically, the higher your DTI, the riskier you are to lenders because it indicates you may be less financially able to make your mortgage payments. While lenders usually prefer  conventional loan  borrowers (those getting a loan not backed by the government) have a debt-to-income ratio of 36% or below, some will accept a DTI under 43%. That would mean less than half of your gross monthly income goes toward fixed debt payments and the rest is yours to spend on remaining wants and needs.

Depending on the state of your financial health in other aspects, such as your credit score, you may qualify for a loan with a DTI up to a maximum of 50%. Loans backed by the government, like FHA loans, typically accept borrowers with DTI ratios up to 43% and may allow higher ratios closer to 57% in certain cases.

Tips to lower your DTI

If you aren't happy with your current DTI, remember it isn't a fixed number. You can lower it by either increasing your monthly income or decreasing your existing debt. Whether you're having trouble getting approved for a loan or are facing high interest rates, these tips may help reduce your DTI:

  • Compare your credit card interest rates and pay down ones with the highest rates first.

  • Use the 50/30/20 rules to create a budget you can stick to, that will help you manage your spending.

  • Pay all bills on time to avoid piling on late fees.

  • Get a side hustle to help pay down debt — like ridesharing, tutoring online, selling clothes or a part-time position.

Score the DTI you need for a mortgage

Your debt-to-income ratio is one number that holds weight when it comes to buying or refinancing a home. If it's not where you want it to be right now, you don't need to give up on your goal of owning a new home. While you work toward lowering your DTI, it could be a good time to check your  credit score  and boost your down payment so you’re fully financially ready for the house you want.

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