Income & Debts
Your DTI Results
FHA vs Conventional DTI Requirements
| Requirement | Conventional | FHA |
|---|---|---|
| Front-End DTI Limit | 28% | 31% |
| Back-End DTI Limit | 36% | 43% |
| Max DTI with Compensating Factors | Up to 50% | Up to 50% |
| Minimum Credit Score | 620+ | 580+ (3.5% down) |
| Minimum Down Payment | 3–20% | 3.5% |
| Mortgage Insurance | Required if <20% down (removable) | Required for life of loan |
| Compensating Factors | High credit, large reserves, low LTV | Reserves, residual income, minimal payment increase |
DTI Ratio Ranges
| DTI Range | Rating | What It Means |
|---|---|---|
| Under 20% | Excellent | Very manageable debt level; strong position for any loan type |
| 20–35% | Good | Healthy debt level; qualifies for most conventional mortgages |
| 36–43% | Acceptable | Manageable but tight; may qualify for FHA but not conventional |
| 43–50% | High | Difficult to qualify for most mortgages; reduce debt first |
| Over 50% | Very High | Severe financial strain; most lenders will not approve a mortgage |
Tips to Lower Your DTI
Reduce Your Debt
- Pay off credit cards with the highest minimum payments first (avalanche method targets interest, snowball targets smallest balances)
- Refinance auto or student loans for a lower monthly payment — extending the term reduces DTI even if total interest is higher
- Consolidate multiple debts into one lower-payment loan
- Avoid taking on new debt (new car, personal loan) before applying for a mortgage
- Pay down credit card balances below 30% of limits — this also boosts your credit score
Increase Your Income
- Negotiate a raise or promotion — even a small increase can shift your DTI several percentage points
- Add a co-borrower (spouse, partner) to combine incomes on the mortgage application
- Start a side hustle or freelance work — lenders typically want 2 years of documented income
- Include bonuses, overtime, rental income, or investment income if consistent and documented
- Wait to apply until after a raise takes effect — one or two pay stubs at the new rate may be enough
What Is a Debt-to-Income Ratio?
Your debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes toward paying debts. It is one of the most important metrics lenders use to evaluate your ability to manage monthly payments and repay borrowed money. A lower DTI signals to lenders that you have a healthy balance between debt and income, making you a less risky borrower.
DTI is calculated by dividing your total monthly debt payments by your gross monthly income (before taxes and deductions). For example, if you pay $2,150 per month in total debts and earn $6,000 per month gross, your DTI is 35.8%.
Front-End vs. Back-End DTI
Lenders look at two types of DTI when evaluating mortgage applications. Front-end DTI (also called the housing ratio) includes only housing-related costs: your mortgage payment, property taxes, homeowner's insurance, and HOA fees. Back-end DTI includes all recurring monthly debt obligations — housing costs plus car payments, student loans, credit card minimums, personal loans, child support, and any other debts.
Both ratios matter. A borrower might have a low front-end DTI because they found an affordable home, but a high back-end DTI because of large car and student loan payments. Lenders need both numbers to paint a complete picture of your financial obligations.
The 28/36 Rule for Conventional Loans
The 28/36 rule is a widely used guideline for conventional mortgage qualification. It states that your front-end DTI (housing costs) should not exceed 28% of gross monthly income, and your back-end DTI (all debts) should not exceed 36%. For example, on a $6,000 monthly income, your housing costs should stay below $1,680 and total debts below $2,160.
This rule is a guideline, not a hard limit. Borrowers with excellent credit (740+), large down payments (20%+), or significant cash reserves may qualify with higher ratios. However, staying within the 28/36 rule ensures you are not overextending yourself financially.
FHA Loan DTI Limits (31/43)
FHA loans — backed by the Federal Housing Administration — are more flexible with DTI requirements. The standard FHA DTI limits are 31% for front-end and 43% for back-end. In some cases, borrowers with compensating factors (high credit score, large savings, or minimal payment increase from rent to mortgage) may qualify with back-end DTI ratios as high as 50%.
FHA loans are popular with first-time homebuyers because they allow lower down payments (3.5%) and more lenient DTI requirements. However, they require mortgage insurance premiums (MIP), which add to the monthly housing cost and increase your front-end DTI.
How Much House Can You Afford Based on DTI?
To estimate how much house you can afford, work backward from the DTI limits. Take your gross monthly income, multiply by the target front-end DTI (28% for conventional, 31% for FHA), and that gives you the maximum monthly housing payment. Then subtract property taxes, insurance, and HOA fees to find the maximum mortgage payment — which you can plug into a mortgage calculator to find the purchase price.
For example, with a $6,000 gross monthly income and the conventional 28% limit, your maximum housing cost is $1,680/month. After subtracting estimated taxes ($300), insurance ($100), and no HOA, your maximum mortgage payment is $1,280 — roughly a $240,000 home at a 6.5% interest rate on a 30-year loan.