The Consumer Financial Protection Bureau defines debt-to-income ratio as all monthly debt payments divided by gross monthly income, meaning income before taxes and other deductions. Mortgage lenders, auto lenders and other creditors use DTI alongside credit history and savings to judge how much new debt a borrower can carry. The CFPB's example counts a mortgage payment, an auto loan and other debt payments; living costs that are not debt payments are not part of the formula.
Formula
DTI = (total monthly debt payments ÷ gross monthly income) × 100
- Total monthly debt payments: the sum of required monthly payments on all debts.
- Gross monthly income: income before taxes and deductions.
A front-end ratio counts only housing costs; a back-end ratio counts housing plus all other debts.
Example
A borrower earns $7,000 a month before taxes and pays $1,800 for housing, $350 for a car loan, $250 for student loans and a $100 credit card minimum, for $2,500 in total.
- DTI = $2,500 ÷ $7,000 × 100 ≈ 35.7%
The CFPB's own example: $2,000 of monthly debt against $6,000 of gross monthly income gives a DTI of 33%.
Typical limits
Limits vary by lender and loan program. Fannie Mae's maximum total DTI is 36% for manually underwritten loans, which can be exceeded up to 45% when the borrower meets credit score and reserve requirements, and 50% for loans underwritten through its Desktop Underwriter system.
The DTI calculator computes front-end and back-end ratios, and the good debt-to-income ratio guide explains thresholds across loan types. For income quoted hourly, the salary to hourly calculator converts between pay figures.
Common mistakes
- Using take-home pay instead of gross income, which overstates DTI.
- Counting only current debts and forgetting the payment on the new loan being applied for.
- Confusing DTI with a loan's APR: DTI measures affordability, while APR measures the cost of the loan.