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Definition
Debt-to-Income (DTI) ratio is your total monthly debt obligations divided by your gross monthly income, expressed as a percentage. Lenders calculate two versions: the front-end DTI (housing costs only: principal, interest, taxes, insurance) and the back-end DTI (all debts: housing + car loans + student loans + minimum credit card payments). Most conventional lenders cap back-end DTI at 43%; FHA allows up to 57% with compensating factors; VA loans have no hard limit but prefer below 41%. Improving your DTI before applying — by paying down revolving balances or increasing income — can mean the difference between approval and denial, and between good and great rates.
Also Known As
back-end ratio
front-end ratio (housing costs only)
debt ratio
total debt ratio
Used in Context
- Carlos had a 42% back-end DTI due to his car payments and student loans — just under the conventional limit, but enough to push his rate 0.25% higher than the bank's best-tier pricing.
- By paying off a $350/month car loan before applying, Sarah lowered her DTI from 48% to 41% and qualified for an FHA loan she had previously been denied.
- FHA underwriters may approve a DTI up to 57% when compensating factors exist — high credit score, significant cash reserves, or a history of paying similar housing costs.
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