What DTI actually is
Debt-to-income ratio (DTI) is exactly what it sounds like: the percentage of your gross (pre-tax) monthly income that goes to required debt payments — including your future mortgage.
DTI = (total required monthly debts) ÷ (gross monthly income) × 100
Underwriters use DTI as a proxy for one question: "If we hand this borrower a mortgage, can they still pay everything else?"
Front-end vs back-end DTI
There are two DTI numbers on every mortgage file:
- Front-end (housing) DTI — only the new housing payment (PITI + HOA) as a percentage of income.
- Back-end (total) DTI — the housing payment plus every other minimum monthly debt on your credit report.
Most modern programs only enforce a back-end cap, but FHA still has a soft 31% front-end guideline. Automated underwriting can override it with compensating factors.
What counts (and what doesn't)
Counts toward DTI
- • Credit card minimum payments
- • Auto loans & leases
- • Student loans (see program rules below)
- • Personal & installment loans
- • Existing mortgages / HELOCs
- • Court-ordered child support & alimony
- • Co-signed debts (unless 12+ mo. paid by other party)
Does NOT count
- • Utilities & phone bills
- • Insurance premiums (non-escrowed)
- • Streaming, gym, subscriptions
- • Groceries & gas
- • 401(k) loans (payment to yourself)
- • Medical collections under $500 (most programs)
- • Deferred debts with 6+ months until repayment (varies)
The real DTI caps by program (2026)
| Program | Standard cap | Stretched cap | Notes |
|---|---|---|---|
| FHA | 43% | 56.9% | Needs compensating factors + AUS approval |
| VA | 41% | 50%+ | Residual income test can override the ratio entirely |
| USDA | 41% | 44% | Requires debt waiver + strong credit |
| Conventional | 45% | 50% | Needs 2+ months reserves & strong AUS decision |
"Compensating factors" are things like 12+ months of reserves, a documented history of paying more than the proposed housing payment, minimal payment shock, or a 740+ FICO.
Student loans: the trap that kills FTHBs
Every program treats deferred and income-driven student loans differently. As of 2026:
- FHA: Use the actual payment on the credit report; if $0, use 0.5% of the balance.
- Conventional (Fannie Mae): Actual payment if reporting; otherwise 1% of balance or a documented IBR payment.
- VA: Use the actual payment, or 5% of balance ÷ 12 if deferred beyond 12 months (most flexible).
- USDA: Fixed payment reporting, or 0.5% of balance for IBR/deferred.
A $60K student loan can cost you $300–$600/month of DTI depending on which program you apply under — the same borrower can be denied Conventional and approved FHA on the same day.
How to lower DTI fast (ranked by effect)
- Pay off the smallest debt entirely. Removing a $250/mo payment can add ~$40K in buying power. Paying $250 down on a $10K balance does nothing — the minimum payment is what shows on the credit report.
- Refinance high-payment car loans. A 24-month remaining car loan often disappears from DTI on some programs if under 10 payments remain.
- Get on an income-driven student loan plan and document it. Can drop phantom student-loan DTI hits by 50%+ on Conventional.
- Increase documentable income. Bonus/OT counts with a 2-year history. A raise letter + first paycheck is often enough with a compliant lender.
- Stop opening new tradelines. Every new card = new minimum payment on the report + FICO drop. Freeze the plastic 90 days before applying.
The 28/36 rule (and why lenders ignore it)
You'll see the "28/36 rule" everywhere: spend no more than 28% of income on housing and 36% total. It's a fine budgeting guideline but has almost nothing to do with what modern lenders actually approve. Every FTHB program I write today sits above 36% back-end — often well above.
The correct question isn't "does my DTI fit an old rule of thumb?" It's "which program will approve me at today's DTI, and what's the fastest path to a better one?"
Where to go from here
- Compare FHA, VA, and Conventional side-by-side by DTI cap.
- Run the affordability calculator to see the DTI headroom on your target price.
- Take the Readiness Scorecard for a full personalized DTI + credit + reserves report.