The DTI formula
Front-end DTI = monthly housing payment ÷ gross monthly income
Back-end DTI = (housing payment + other monthly debt payments) ÷ gross monthly income
When people say "DTI" without a qualifier, they usually mean the back-end ratio, because it is the one most loan programs set a hard limit on. Both ratios use gross income, before taxes and deductions, and the required monthly payments on debts, not the balances.
Step 1: gross monthly income
Convert every source of income to a gross monthly figure. Salaries: annual salary ÷ 12, here ($78,000 + $54,600) ÷ 12 = $11,050. Biweekly pay: one paycheck × 26 ÷ 12, not × 2, because some months have three paydays. Hourly pay: rate × hours per week × 52 ÷ 12. Variable income such as overtime, bonuses, commission or self-employment is normally averaged over a history of usually two years, and only if it is likely to continue. Lenders verify all of it with pay stubs, W-2s or tax returns.
Step 2: which debts count
- Counted: the new mortgage payment with property tax, homeowners insurance, mortgage insurance and HOA dues (PITI plus HOA), car loans and leases, student loans, the minimum payment on every credit card, personal loans, payments on other properties, and court-ordered child support or alimony.
- Not counted: everyday living costs such as utilities, phone, groceries, car insurance, subscriptions and income taxes. They matter for your budget, but they are not debts.
Some details depend on the loan program. An installment loan with only a few payments left may be left out, and a student loan in deferment usually still counts with a calculated payment, often a percentage of the balance. Credit cards count with the minimum payment even if you pay them off in full every month.
Step 3: calculate both ratios
The proposed loan is $360,000 at 6.5% over 30 years. Principal and interest are =PMT(6.5%/12,360,-360000) = $2,275.44. Add $620 for property tax and insurance and $75 HOA dues, and the housing payment is $2,970.44. The other debts are $465 + $310 + $95 = $870.
- Front-end DTI: $2,970.44 ÷ $11,050 = 26.9%
- Back-end DTI: ($2,970.44 + $870) ÷ $11,050 = 34.8%
Both are inside the 28/36 rule of thumb, so this file passes even the most conservative test.
Worked example: DTI and the maximum loan
All amounts are monthly unless stated otherwise. Change the limits in B18, B19 and B23 to test other loan programs. The household and its figures are fictional.
| A | B | Formula in B | |
|---|---|---|---|
| 1 | Monthly figures | $ | |
| 2 | Gross annual salary, borrower 1 | 78,000 | |
| 3 | Gross annual salary, borrower 2 | 54,600 | |
| 4 | Gross monthly income | 11,050.00 | =(B2+B3)/12 |
| 5 | Car loan payment | 465.00 | |
| 6 | Student loan payment | 310.00 | |
| 7 | Credit card minimum payments | 95.00 | |
| 8 | Other monthly debt payments | 870.00 | =SUM(B5:B7) |
| 9 | Loan amount | 360,000 | |
| 10 | Interest rate (per year) | 6.50% | |
| 11 | Term (years) | 30 | |
| 12 | Principal & interest | 2,275.44 | =PMT(B10/12,B11*12,-B9) |
| 13 | Property tax + insurance (escrow) | 620.00 | |
| 14 | HOA dues | 75.00 | |
| 15 | Housing payment (PITI + HOA) | 2,970.44 | =B12+B13+B14 |
| 16 | Front-end DTI | 26.9% | =B15/B4 |
| 17 | Back-end DTI | 34.8% | =(B15+B8)/B4 |
| 18 | Front-end limit | 28% | |
| 19 | Back-end limit | 36% | |
| 20 | Max housing payment (both limits) | 3,094.00 | =MIN(B4*B18,B4*B19-B8) |
| 21 | Max principal & interest | 2,399.00 | =B20-B13-B14 |
| 22 | Max loan at 28/36 | 379,548 | =PV(B10/12,B11*12,-B21) |
| 23 | Higher back-end limit (no front-end) | 45% | |
| 24 | Max housing payment at that limit | 4,102.50 | =B4*B23-B8 |
| 25 | Max loan at that limit | 539,103 | =PV(B10/12,B11*12,-(B24-B13-B14)) |
This guide is educational, not financial or lending advice. Actual limits depend on the loan program, the lender and the full credit file.
What DTI do US lenders accept?
Limits depend on the loan program and on the rest of the file: credit score, down payment and cash reserves. Typical figures in 2026:
- 28/36 rule of thumb: housing up to 28% and all debts up to 36% of gross income. It is a conservative benchmark, not a law.
- Conventional loans (Fannie Mae, Freddie Mac): Fannie Mae's guide sets 36% for manually underwritten loans, up to 45% with the required credit score and reserves, and up to 50% for loans approved through its automated system (Desktop Underwriter).
- FHA loans: the standard benchmarks are 31% front-end and 43% back-end. With compensating factors, or an approval from the automated underwriting system, back-end ratios in the high 40s and up to about 57% are possible.
- Qualified mortgages: the old hard 43% DTI cap for general QM loans was replaced by a price-based test under the CFPB rule that took effect in 2021. Lenders must still consider and verify DTI or residual income.
These are the published maximums. An individual lender can apply stricter limits of its own, and a file near the maximum usually needs stronger credit, more reserves or closer review.
From DTI to the maximum loan
Turn the limits around to find the largest payment that keeps both ratios in line:
Max housing payment = MIN(income × front-end limit, income × back-end limit − other debts)
Here that is MIN($3,094.00, $3,108.00) = $3,094.00, so the front-end limit binds. Only principal and interest repay the loan, so subtract escrow and HOA dues: $3,094.00 − $620 − $75 = $2,399.00. Then PV turns that payment into a loan amount: =PV(6.5%/12,360,-2399) = $379,548.
Under a program that only applies a back-end limit of 45%, the maximum housing payment rises to $4,102.50 and the maximum loan to $539,103. Being able to borrow that much is not the same as being comfortable with the payment, which is why many households set their own limit closer to 28/36. The loan amortization schedule shows how the payment splits into interest and principal over time.
How to lower your DTI
Pay off or pay down a debt with a high monthly payment, such as a car loan close to its end. Avoid new credit before applying. Add a co-borrower's income if they will be on the loan. Choose a cheaper home or a larger down payment, which lowers the housing payment. Paying a credit card down reduces its minimum payment, but closing the card does not help the ratio and may hurt your credit score.
Common mistakes
- Using net instead of gross income. DTI is based on income before taxes. Using take-home pay overstates the ratio.
- Counting balances instead of payments. A $20,000 student loan enters the ratio as its monthly payment, not as $20,000.
- Leaving taxes, insurance and HOA out of the housing payment. Lenders use the full PITI plus HOA dues, not principal and interest alone.
- Forgetting credit card minimums. They count even if you pay the full balance every month.
- Adding living costs. Utilities, groceries and car insurance are not debts and do not belong in the ratio.
- Checking only the back-end limit. Where a program also has a front-end limit, the maximum payment is the lower of the two.
Frequently asked questions
How do you calculate the debt-to-income ratio?
Add up all required monthly debt payments, including the new housing payment, and divide by gross monthly income. For example, a $2,970.44 housing payment plus $870 of other debts on $11,050 of income gives a DTI of 34.8%.
What is a good debt-to-income ratio?
Below 36% is generally considered comfortable, with the housing payment at or below 28%. Many US loan programs accept more, up to 45 to 50% for conventional loans and higher for FHA, depending on the rest of the application.
Does rent count in the debt-to-income ratio?
For a mortgage application, your current rent is not counted, because the new mortgage payment replaces it. Lenders may still look at your rent payment history.
Is DTI based on gross or net income?
Gross income, before taxes and other deductions. That is why DTI limits can look generous compared with a budget built on take-home pay.