Debt-to-income ratio
By David Chen · Published September 26, 2026
The debt-to-income ratio is how a lender turns your finances into a single number. It is not a budget and it is not a judgement about whether you feel comfortable — it is a probability estimate, and it works by asking what share of your gross monthly income is already promised to somebody else before the new loan is added.
Understanding how it is built is worth an hour, because the ratio decides the loan size rather than the other way round. It is also the part of mortgage underwriting where a small change in your situation produces a large change in what you are allowed to borrow.
Two ratios, not one
There are two versions and they are usually quoted as a pair, in the form 28/36.
- Front-end is housing cost divided by gross monthly income. Housing cost means principal, interest, property tax, insurance and any HOA dues, plus mortgage insurance where it applies.
- Back-end is the same housing cost plus every other monthly debt payment, divided by the same income. It is the stricter of the two in practice, because it sees the whole picture.
Both use gross income — before tax and before any deduction. That is one of the reasons the ratio flatters a household budget: a 36% back-end ratio on gross pay is a considerably larger share of what actually lands in your account.
A worked example
Take an $8,000 monthly income, a $300,000 house with 10% down at 6.50% over 30 years, property tax at 1.2% a year and insurance at $1,800 a year. Add a $420 car payment, $180 of student loan and a $75 card minimum:
| Line | Monthly | Where it comes from |
|---|---|---|
| Principal & interest | $1,706.58 | $270,000 at 6.50% over 30 years |
| Property tax | $300.00 | 1.2% a year on a $300,000 price |
| Home insurance | $150.00 | $1,800 a year |
| Housing total | $2,156.58 | 26.96% of an $8,000 monthly income — the front-end ratio |
| Other debt payments | $675.00 | $420 car loan, $180 student loan, $75 card minimum |
| Total obligations | $2,831.58 | 35.39% of the same income — the back-end ratio |
Produced by our calculators and independently recomputed. Property tax and insurance rates are illustrative — substitute your own county and quote.
So this household sits at 26.96% front-end and 35.39% back-end. Note which half moved: $675 of other debt adds 8.4 percentage points to the ratio without changing the house, the loan or the rate by a cent. That is the whole reason the back-end number is the one that gets discussed.
What counts towards the ratio
The categories below are the shape of it rather than a rulebook — lenders and loan programmes differ in the details, and the treatment of anything ambiguous is a matter for the individual file:
| Category | Treatment |
|---|---|
| Counted | Mortgage or rent, car loans, student loans, personal loans, instalment plans, and the minimum payment on each revolving card. |
| Usually not counted | Utilities, phone and internet, insurance premiums, food, fuel, childcare, taxes and anything already repaid. |
| Judgement calls | Support payments, money you pay on someone else's loan, and debts in a grace period are treated differently by different lenders and programmes. Expect to document them and expect the answer to depend on the file. |
General orientation, not a substitute for the specific programme guidance or your lender's own documentation.
Where the ceilings come from
The 43% figure most people have heard sits in the context of US qualified mortgage rules, where a back-end ratio at or below that level has been one of the routes by which a loan can qualify. The 36% figure is the more conservative practice that many lenders and programmes still apply, and 28% is the matching guard on the housing share alone.
None of these is a fixed wall. Programme rules, lender overlays, reserves, credit history and the size of the loan all move the number, and some programmes permit higher ratios when other parts of the file are strong. The CFPB publishes the rules themselves and is a better source than any summary for what currently applies. What is stable is the shape: a ceiling exists, it binds on the back end, and it moves with your income and your other debts.
What the ceiling actually buys
The useful way to read a ratio is in money rather than percentages. Applying two common ceiling pairs to the household above — $96,000 a year, $675 of other debt, $30,000 down:
| Ceiling applied | House price supported | Monthly housing | Front-end | Back-end |
|---|---|---|---|---|
| 28% / 36% | $291,718 | $2,205 | 27.6% | 36.0% |
| 36% / 43% | $364,094 | $2,765 | 34.6% | 43.0% |
6.50% over 30 years, 1.2% property tax, $1,800 insurance a year, PMI modelled at 0.50%. At 10% down both rows still include mortgage insurance. Produced by our affordability calculator and independently recomputed.
The difference between the two ceilings is $72,376 of house from the same income and the same savings. Neither figure is an instruction — they are the boundaries of what a lender will consider, and the second one costs more every month because it is a bigger loan.
Because the ratio is a share of income, the ceiling scales with what you earn. Holding the debts, the down payment and the rate constant, the same 43% back-end ceiling supports:
| Annual income | Monthly income | House price at a 43% back-end ceiling |
|---|---|---|
| $60,000 | $5,000 | $197,370 |
| $80,000 | $6,667 | $289,994 |
| $96,000 | $8,000 | $364,094 |
| $120,000 | $10,000 | $472,012 |
Same assumptions as above. This is the ceiling, not a recommendation — see the note below on why the two are different numbers.
To run this on your own income and debts, the affordability calculator does the same arithmetic in reverse — from income to price rather than from price to payment.
Three ways to lower the ratio, and what each one costs
Almost everything that improves the ratio trades something else away. Worth knowing which trade you are making:
- Retire a debt. Clearing a $420 car payment removes $420 from the numerator, which at a 43% ceiling raises the monthly housing budget from $2,765 to $3,185 and supports a larger loan. The cost is the cash, and if the debt you clear was cheaper than the mortgage you are about to take, you have traded cheap money for expensive money in order to qualify for more of it.
- Increase documented income. A raise helps immediately at the next underwriting, but overtime, bonuses and second jobs are treated differently from base salary, and the treatment varies by programme. The cost here is that income that is not stable does not fix a stability problem — it only changes which month the problem shows up in.
- Put more down. A larger down payment lowers the loan and therefore the payment, so it lowers both ratios. It also removes mortgage insurance once you cross 20%, which lowers the housing cost again. The cost is liquidity: the reserve you no longer have is what protects you if income stops, and a thin reserve is exactly the situation a high ratio was warning about.
Two things do not work, though they are widely believed to. Paying down a card without closing it helps only through the minimum payment, so the effect is often smaller than expected. And a co-signer adds their obligations to yours as well as their income, which can move the ratio in either direction.
The ratio is not a budget
Everything above describes a lender's test. It is deliberately generous in two directions: it uses gross income, and it ignores everything a household spends that is not a debt payment. Childcare, maintenance, commuting, medical costs and saving do not appear anywhere in the calculation, and they are the reason two households with identical ratios can have very different experiences of the same payment.
The honest use of the number is as a ceiling rather than a target. How much house can I afford works through what the approved figure leaves out; this page covers how the figure is produced.
The short version
The ratio is housing cost over gross income (front-end) and all debt payments over gross income (back-end), and the back end is the one that binds. In the example here, $675 of debt adds 8.4 points to a household that would otherwise sit at 27% front-end. The commonly quoted ceilings are programme rules rather than physics, and the gap between a 28/36 and a 36/43 ceiling is $72,376 of house on a $96,000 income. Lowering the ratio always costs something — cash, liquidity or stability — and the number to keep in view is the one your own budget supports, not the one a lender will approve.
Frequently asked questions
What is a good debt-to-income ratio?
Lower is easier, and there is no threshold below which the ratio stops mattering — it is one input among credit history, reserves and the property itself. What the number does do is set a ceiling on how much you can borrow: in the worked example here, moving from a 28/36 ceiling to a 36/43 ceiling raises the supported house price from $291,718 to $364,094, a gap of $72,376.
Is front-end or back-end DTI more important?
Back-end, in almost every case, because it is the number that captures your whole debt load rather than just the housing payment. Front-end exists as a secondary guard — it stops a borrower with no other debts from putting an unusually large share of income into a house. In the worked example the back-end ratio is the binding one at both ceilings, because $675 of other debt is large relative to the income.
Does paying off a credit card help my ratio?
Yes, and often more than the balance suggests, because what counts is the minimum payment rather than the outstanding amount. Closing the account can work against you if it reduces your available credit, so the usual approach is to clear the balance and leave the line open. Paying down an instalment loan helps only when it reduces or retires the monthly obligation.
Can I get a mortgage with a DTI above 43%?
Sometimes — the ceiling is not a single national wall. It varies with the loan programme, the lender, the size of your reserves and the rest of your file, and some programmes allow higher ratios with compensating factors. What is consistent is that a higher ratio narrows your options and usually costs more. Our guide to how much house you can afford covers what the approved figure leaves out.
Should I use the ratio to decide what I can afford?
No. The ratio is a lender's test of default probability, not a household budget. It says nothing about childcare, maintenance, commuting costs or the reserve you would need after closing, and it is calculated on gross income rather than take-home pay. Treat the ceiling as the upper bound of what a lender will consider, then build your own budget underneath it — that is the gap the affordability calculator is designed to show.
Related guides
- How much house can I afford? — Why the price a lender approves is not the price you should pay, how the debt-to-income rules work, and what the monthly figure has to cover beyond principal and interest.
- How to remove PMI from your mortgage — Why mortgage insurance ends when the balance crosses a threshold rather than after a fixed number of years, what it costs on a worked loan, and how a larger down payment or extra payments bring the date forward.
- Biweekly payments: what they really save — How paying half your mortgage every two weeks works, the exact saving on a worked loan, and the fees and pitfalls to avoid first.
- Refinance break-even point — How to work out the month a refinance pays for itself, why a shorter term can raise your payment and still save six figures, and when not to refinance.
Run your own numbers in the loan calculator.
Calculators for this topic
- Home affordability calculator — Works the mortgage question backwards: start from your income, debts and down payment, and find the price you can actually carry rather than the price a lender will approve.
- Mortgage calculator — Monthly payment with property tax, home insurance, HOA and PMI folded in — the number that actually leaves your account, not just principal and interest.
- Personal loan calculator — Unsecured borrowing at the rates lenders actually quote, with the origination fee maths that decides whether the money is worth taking.
This guide is educational and is not financial advice. Figures were produced by our calculator and independently recomputed before publication; your lender's own documents govern your loan. Spot an error? Tell us — see also our disclaimer.