Debt-to-income ratio: a worked example
By Francisco Williams, CCIM · CCIM · Mortgage Loan Originator NMLS #1858674 · CA DRE #01979442 · Updated
Short answer
Debt-to-income (DTI) is your monthly debt payments divided by your gross monthly income. Lenders look at the front-end ratio (housing payment only) and the back-end ratio (housing plus other debts such as car loans, student loans and minimum card payments). Limits vary by program.
What counts as debt
Minimum payments on credit cards, car loans and leases, student loans (programs have specific rules for deferred loans), personal loans, child support and alimony, and the proposed housing payment (principal, interest, taxes, insurance, HOA). Utilities, phone bills and groceries don't count.
Worked example
One household, both ratios. Redo it with your own numbers.
| Item | Monthly |
|---|---|
| Gross income | $9,000 |
| Proposed housing payment (PITIA) | $2,700 |
| Car loan | $450 |
| Student loan | $250 |
| Credit card minimums | $100 |
| Front-end DTI (housing ÷ income) | 30% |
| Back-end DTI (all debts ÷ income) | 39% |
Illustrative. Programs set their own limits; none are implied.
What counts as income
Gross (pre-tax) income that is stable and documented: salary, consistent overtime or bonus with history, self-employment income averaged from tax returns, and some benefits. Cash income that isn't on tax returns generally can't be used.
Ways to change the ratio
Pay off or pay down a small debt with few payments left, add a co-borrower whose income and debts both count, choose a lower price or larger down payment, or wait for a raise to show up in pay history.
Next step
Model a payment with Francisco's calculators before you talk to a lender.
Frequently asked questions
What's the difference between front-end and back-end DTI?
Front-end counts only the housing payment; back-end adds all other monthly debts.
Do utilities count in DTI?
No. Only debts that appear on credit or by court order, plus housing.
Does a co-borrower help DTI?
Their income counts, but so do their debts.
Sources
Self-employed? A 90-day prep plan for a bank-statement loan
What to clean up in the three months before applying with bank statements instead of tax returns: deposits, accounts, transfers and letters.
HELOC or cash-out refinance? A blended-rate worksheet
How to compare adding a second lien with replacing your first mortgage: blended cost, closing costs and term.