October 13, 2025
When you apply for a mortgage, car loan, or even a credit card, one of the key numbers lenders look at is your Debt-to-Income (DTI) ratio. It may not get as much attention as your credit score, but your DTI is one of the many factors that can make or break your loan approval.
What Is Debt-to-Income Ratio?
Your DTI compares your monthly debt payments to your gross monthly income (income before taxes). Lenders use it to gauge whether you can comfortably handle a new loan on top of your existing obligations.
For example, if you earn $6,000 per month before taxes and have $2,100 in monthly debt (like car payments, student loans, and credit cards), your DTI is 35%.
DTI = (Monthly Debt Payments ÷ Gross Monthly Income) × 100
Why Does DTI Matter to Lenders?
⦁ Conventional mortgages usually prefer DTIs below 43%.1
⦁ FHA loans can allow higher DTIs, sometimes up to 50%.2
How You May Improve Your DTI Before Applying**
⦁ Pay down high-interest debt first (like credit cards).
⦁ Avoid taking on new debt before applying for a mortgage.
⦁ Increase your income through side work, bonuses, or additional household income.
⦁ Refinance or consolidate debt if it lowers your overall monthly payments.
Work With Your Mortgage Specialist
A Mortgage Specialist can review your finances and help you understand how your DTI impacts your home loan options. They’ll walk you through different loan programs, run scenarios to show how paying off certain debts affects your DTI, and help you develop a strategy to get loan-ready.
Takeaway
Your Debt-to-Income ratio is one of the most important factors lenders consider when deciding whether to approve your loan. By understanding how it works—and taking steps to improve it—you might set yourself up for better financing options. And with the guidance of a trusted Mortgage Specialist, you’ll know exactly where you stand and how to move forward with confidence.
Sources: CFPB, 2FHA.com, 1FannieMae.com
**Directors Mortgage is not a credit repair or credit counseling company.