The formula
Add up your monthly debt payments, divide by your gross monthly income, which is your pay before taxes, and multiply by 100. The result is a percentage. A DTI of 30% means 30 cents of each pre-tax dollar goes to debt payments.
What counts as debt
Lenders typically count the housing payment you are applying for or already have, car loans, student loans, minimum credit card payments, personal loans, and court-ordered payments like child support. They usually leave out everyday bills such as utilities, groceries, phone service and insurance premiums. Practices differ, so ask your lender what it includes.
Use the minimum required payment for credit cards, not what you choose to pay. Loans with only a few payments left still count until they are paid off, although a lender may treat them differently, so ask. And use gross income, not take-home pay, so the percentage is lower than it would feel in your budget.
Worked example
All numbers are invented. Imagine gross income of $6,000 a month. The proposed housing payment is $1,500, a car loan is $350, student loans are $200 and the credit card minimum is $100. That is $2,150 in monthly debts. Divide $2,150 by $6,000 and you get 35.8%.
If the card is paid off, debts fall to $2,050 and the ratio to 34.2%. If the car loan is paid off instead, debts fall to $1,800 and the ratio to 30.0%. If income rises to $6,500 with the original debts, the ratio is 33.1%.
Front-end versus back-end
The front-end ratio looks only at housing costs, typically including taxes and insurance, divided by gross income. In the example it is $1,500 divided by $6,000, or 25.0%. The back-end ratio includes all debts, which is the 35.8% above.
Checking both ratios shows whether the housing payment itself is too big or whether other debts are the problem. Some lenders look at one, some at both, and some give more weight to other factors such as credit history, savings and the size of the down payment.
Lenders set their own limits
There is no single cutoff. Different lenders, loan types and programs set different limits, and the limit can change with your credit and the rest of your application. Suppose a lender used an example limit of 36%. On $6,000 that is $2,160 in monthly debts, and the example above, at $2,150, would be just inside it. Ask lenders what ratio they use and what they count before you apply.
Ways to lower it
There are two levers: reduce the debt or raise the income. Paying off a small loan or card removes its payment completely, which often moves the ratio more than extra payments on a large balance. Avoid taking on new loans before applying. Adding documented income, such as a raise or a second earner on the application, helps too.
Be careful with rushed moves like closing accounts, which can affect other parts of your credit. If your numbers are close to a limit, a housing counselor or lender can walk through your choices.
Try the calculator
Run your own numbers in the free debt-to-income ratio calculator. It works in your browser and nothing you enter is saved or sent.
Sources
Common questions
Is a low DTI always good?
A lower ratio generally means more room in your budget, but lenders also consider credit history, savings and other factors.
Does rent count?
Rent is not usually counted for a new mortgage application, because the new housing payment replaces it, but lenders can differ. Ask.
Should I use gross or net income?
Lenders generally use gross income. Your own budget should use take-home pay.
This guide is general information, not financial, tax or legal advice. Rates, fees and rules change, so confirm current terms with the lender, store or agency involved. All dollar figures are invented examples.