What Is a Good Debt-to-Income Ratio? (And How to Improve Yours)

When you apply for a mortgage, one number matters almost as much as your credit score: your debt-to-income ratio (DTI). Lenders use it to determine how much of your income is already committed to debt payments — and whether you can handle a mortgage on top of it. Here's what a good DTI looks like, how to calculate yours, and what to do if it's too high.

What Is Debt-to-Income Ratio?

Your debt-to-income ratio is your total monthly debt payments divided by your gross monthly income (before taxes). It's expressed as a percentage. If you earn $6,000/month and have $2,000 in monthly debt payments, your DTI is 33%.

Front-End vs. Back-End DTI

Lenders typically look at two DTI numbers:

• Front-end DTI: Only your housing costs (proposed mortgage payment, property taxes, insurance, HOA) divided by gross income. Also called the 'housing ratio.'
• Back-end DTI: All monthly debt payments (housing + car loans + student loans + credit card minimums + any other debt) divided by gross income.

When lenders say 'DTI limit,' they usually mean the back-end ratio. Most conventional mortgages have a maximum back-end DTI of 43-45%, though some allow up to 50% with strong credit.

What Is a Good Debt-to-Income Ratio?

• Excellent: Below 20% — lenders will compete for your business
• Good: 20-35% — most loans available at competitive rates
• Acceptable: 36-43% — mortgage approval likely but rates may be higher
• Risky: 44-50% — limited loan options, may require excellent credit
• Too high: Above 50% — most conventional mortgage lenders will decline

How to Calculate Your DTI

Add up all minimum monthly debt payments: rent or mortgage, car loans, student loans, credit card minimum payments, personal loans, child support or alimony. Divide that total by your gross monthly income. Multiply by 100 to get the percentage.

Important: 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 in your DTI calculation.

How to Improve Your DTI

• Pay down high-balance debts before applying for a mortgage
• Pay off (or close) credit cards with balances — reduces minimum payments
• Avoid taking on new debt in the 6-12 months before applying
• Increase your income (part-time work, freelancing, raises) before applying
• Consider a less expensive home to lower the proposed housing payment