What Is Debt-to-Income Ratio? How to Calculate and Improve It

Your debt-to-income (DTI) ratio is one of the most important numbers in your financial life — especially when applying for a mortgage, car loan, or personal loan. Lenders use it to decide whether to approve you and at what interest rate. Yet most people have never calculated theirs.

How to Calculate Your DTI

DTI = Total Monthly Debt Payments ÷ Gross Monthly Income × 100. For example: if your monthly debt payments are $1,500 (mortgage $1,000 + car $300 + credit card minimums $200) and your gross income is $5,000/month, your DTI is 30%. Note that DTI uses minimum payments, not what you actually pay — if you pay $500/month on a credit card with a $25 minimum, only $25 counts toward your DTI.

What Counts as Debt Payments?

• Mortgage or rent payment
• Car loan payments
• Minimum credit card payments
• Student loan payments
• Personal loan payments
• Any other recurring debt obligations
• NOT included: utilities, groceries, insurance, subscriptions

What's a Good DTI Ratio?

• Below 36%: Good — most lenders approve you comfortably
• 36-43%: Acceptable — you'll qualify for most loans but may not get the best rates
• 43-50%: Risky — many lenders won't approve; those that do charge more
• Above 50%: Danger zone — very hard to qualify for new credit; financial stress likely
• For mortgages: lenders prefer your housing costs alone to be below 28% of gross income

How to Lower Your DTI

1. 1Pay off smallest debts first — eliminates the monthly payment entirely, improving DTI more than paying down large balances
2. 2Avoid taking on new debt — every new loan payment hurts your DTI
3. 3Increase income — a side job, raise, or second income source improves DTI immediately
4. 4Consolidate debt — combining multiple payments into one lower-rate loan can reduce total monthly payments
5. 5Don't close old credit cards — closing accounts doesn't reduce DTI (debt stays the same) but can hurt your credit score

DTI and Mortgage Approval

For a conventional mortgage, lenders typically want a back-end DTI below 43%, and ideally below 36%. FHA loans allow up to 50% DTI in some cases. If your DTI is too high to qualify for the home you want, you have two options: pay down debt before applying, or increase your income.