What exactly is the debt-to-income ratio and why does it matter in the home-buying process?

Your DTI ratio compares your monthly debt payments to your gross monthly income. Lenders use it to measure your ability to manage monthly payments and repay the money you plan to borrow. A lower DTI shows you have a good balance of debt and income, making you a more attractive borrower.

Can you break down what’s actually included in the DTI calculation?

It includes all recurring monthly debts like car loans, credit card minimums, student loans, and any existing mortgages. It even includes "buy now but pay later" options such as After-Pay and Klarna. We then compare that total to your gross monthly income—before taxes. We don’t include things like utilities, groceries, or subscriptions. 

If a buyer’s DTI is too high, what are some ways they can improve it before applying?

There are a couple of ways - paying down credit card balances, avoiding new debt, or even increasing income if possible.

How does DTI affect how much home someone can afford?

It’s directly connected. A higher DTI limits how much of your income can go toward your mortgage payment. So, even if you have a good income, high debt can reduce the loan amount you qualify for. Staying within the recommended DTI range helps you afford more and keeps you financially comfortable.

I've heard that different loan programs have different debt-to-income requirements. Can you walk us through that?

Yes, that’s exactly right. Each loan type has its own DTI guidelines.

For example:

Conventional loans usually cap the DTI around 50%, but you'll get better terms under 45%.

FHA loans are more flexible—they allow up to 56% DTI in some cases, making them great for first-time buyers with more debt.

VA loans for veterans, lenders typically prefer 60% or lower.

USDA loans are usually capped at 41%, but they also consider your residual income.

Ready to Buy or Sell? Give us a call! We are here to help you take the smoother road to sold.