The Number That Can Make or Break Your Mortgage
Your credit score gets all the attention, but your debt-to-income ratio (DTI) is equally important in determining whether you qualify for a mortgage — and how much you can borrow. Understanding DTI and knowing how to optimize it can mean the difference between getting approved and getting denied.
What Is DTI?
Debt-to-income ratio compares your total monthly debt payments to your gross monthly income (before taxes). It's expressed as a percentage.
Formula: (Total Monthly Debt Payments / Gross Monthly Income) x 100 = DTI%
Two Types of DTI
Lenders look at two DTI calculations:
Front-End DTI (Housing Ratio):
Only includes your proposed housing payment (principal, interest, taxes, insurance, HOA, PMI). Most lenders want this below 28-31%.
Back-End DTI (Total Ratio):
Includes housing payment PLUS all other monthly debts. This is the more important number.
What Counts as "Debt"?
Included in DTI:
NOT Included in DTI:
Common Surprise: Things People Forget
DTI Limits by Loan Program
Compensating Factors That Allow Higher DTI
Lenders may approve a higher DTI if you have:
DTI in Action: A Real Example
Buyer: Sarah, registered nurse in Philadelphia
With 43% maximum total DTI:
With 50% maximum total DTI (strong credit, reserves):
That's a $60,000-$65,000 difference in buying power just from qualifying at a higher DTI tier.
7 Ways to Lower Your DTI
1. Pay Off Small Debts
Eliminating a $200/month car payment or a credit card with a $100 minimum payment has an outsized impact. Target debts with the smallest balances first for quick DTI wins.
2. Increase Your Income
A raise, bonus, promotion, or documented side income all increase the denominator in the DTI equation. Even overtime or part-time work counts if you have a 2-year history.
3. Pay Down Credit Card Balances
Reducing balances lowers your minimum payments. Paying a card below $0 balance eliminates that minimum payment entirely from your DTI.
4. Refinance Existing Loans
Extending the term on a car loan from 36 to 60 months reduces the monthly payment. The total interest cost goes up, but your DTI improves for mortgage qualification purposes.
5. Avoid New Debt
Do NOT finance furniture, a new car, or anything else before or during your mortgage process. Every new payment increases your DTI.
6. Switch Student Loans to IDR
As discussed in our student loan article, income-driven repayment plans can dramatically reduce your student loan payment and improve DTI.
7. Add a Co-Borrower
Adding a spouse or partner's income can significantly improve your DTI — as long as their debts don't offset the benefit.
What If Your DTI Is Too High?
If you can't get your DTI to qualifying levels right now, here's a realistic timeline:
The Taberne Group creates customized DTI improvement plans for every client who needs one. We'll tell you exactly which debts to pay off first and how much buying power each dollar of debt elimination creates.
Get Your Free DTI Analysis
Your DTI is something we can calculate in minutes. Call The Taberne Group at (215) 266-0663 or start your application at movement.com. We'll run your numbers, show you exactly where you stand, and create a game plan to get you approved. We serve homebuyers across Pennsylvania and New Jersey.