Why DTI matters
Debt-to-income (DTI) ratio is one of the most important numbers lenders use to decide how much they're willing to lend you. It measures how much of your gross monthly income already goes toward debt obligations, which tells a lender how much cushion you have to take on a new housing payment. Unlike your credit score, DTI is a direct measure of cash-flow risk — it's the single ratio most underwriting systems weigh most heavily.
What counts as a debt payment
Lenders generally include the minimum required payment on installment and revolving debt: car loans, student loans, personal loans, credit card minimums, alimony or child support, and any other loan payments that show up on your credit report. They typically do not count everyday living expenses like groceries, utilities, phone bills, insurance premiums outside of housing, or subscriptions — even though those are real costs, they don't appear on a credit report and aren't part of the DTI formula.
A worked example
Suppose you earn $5,500/month gross and pay $350/month on a car loan and $150/month on student loans — $500/month in total non-housing debt. Your back-end DTI at a 36% cap allows total debt (housing plus other debt) of $1,980/month, leaving $1,480/month for your housing payment after subtracting the $500. Your front-end DTI at 28% would allow $1,540/month for housing on its own — so, similar to the 28/36 rule, the lower of the two figures becomes your real housing budget.
How to lower your DTI
- Pay down or pay off high-payment debts like car loans or credit cards.
- Increase your income (a raise, second job, or additional documented income).
- Choose a lower home price or larger down payment to reduce your housing payment.
- Avoid taking on new debt (like a car loan) before applying for a mortgage.
Want to see the recommended budget these ratios imply directly? Try our 28/36 Rule Calculator or start from your income with the Home Affordability Calculator.