Mortgage Basics
What Is Debt-to-Income Ratio (DTI)?
Debt-to-income ratio (DTI) is a lending measure comparing a borrower's total monthly debt payments to their gross monthly income. Lenders use DTI to determine whether a borrower can comfortably afford a mortgage alongside existing obligations. It is one of the primary qualifying factors in mortgage underwriting.
Front-End vs. Back-End DTI
Front-End Ratio (Housing Ratio)
Includes only housing costs: PITI (principal, interest, taxes, insurance). Most conventional lenders want this below 28%. Formula: Monthly PITI ÷ Gross Monthly Income × 100.
Back-End Ratio (Total Debt Ratio)
Includes ALL monthly debt payments: PITI + car loans + student loans + credit card minimums + all other recurring obligations. Most lenders target below 36–43%. Formula: Total Monthly Debts ÷ Gross Monthly Income × 100.
DTI Limits by Loan Type
Conventional loans: front-end ≤28%, back-end ≤43–45%. FHA: more flexible — back-end up to 57% with compensating factors. VA loans: evaluate residual income rather than strict DTI limits. USDA: generally requires back-end DTI below 41%.
Example calculation: Gross income $6,000/mo. PITI $1,500. Car $400. Student loan $200. Total debt $2,100. DTI = $2,100 ÷ $6,000 = 35%. Front-end = $1,500 ÷ $6,000 = 25%. Both within conventional guidelines.
Real Estate Exam Key Points
DTI uses GROSS monthly income — not take-home/net pay
Front-end ratio: housing costs only (PITI) — guideline: ≤28%
Back-end ratio: all monthly debts — guideline: ≤36% (conventional)
FHA allows higher back-end DTI than conventional with compensating factors
VA evaluates residual income rather than strict DTI limits
Higher income or assets as compensating factors can allow higher DTI
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