Debt-to-Income Ratio (DTI)

Say you bring home $6,000 a month (before taxes) and $2,000 of that goes to debt payments—mortgage, car loan, student loans, credit card minimums. Divide $2,000 by $6,000 and you get 33%. That's your debt-to-income ratio, and lenders pay very close attention to it.

There are actually two flavors. Front-end DTI looks at housing costs alone divided by your income. Back-end DTI includes all debt payments. For a conventional mortgage, most lenders want your front-end DTI under 28% and back-end under 36%, though some loan programs stretch to 43% or even 50%.

Here's the thing—DTI can matter more than your credit score when you're applying for a mortgage. A perfect credit score with a 45% DTI will likely get denied, while a fair score with a 30% DTI might sail through. Lenders see DTI as a direct measure of how much room you have for another payment.

To improve yours, you can either shrink your debt payments (pay off loans, refinance for lower monthly payments) or increase your income. The quickest win is usually knocking out a small debt entirely—that eliminates its monthly payment and drops your ratio.

Even outside of borrowing, DTI is a handy health check. Financial advisors generally suggest keeping total DTI below 36%. Above 43% is considered stressed, and above 50% means your financial flexibility is seriously squeezed.