DTI is one of the three pillars of mortgage qualification, alongside credit score and loan-to-value ratio. Underwriters and AUS systems use DTI to determine whether a borrower can afford the proposed monthly payment.
The two DTI calculations
- Front-End DTI = (proposed monthly housing payment) ÷ gross monthly income. Housing payment includes principal, interest, taxes, insurance, HOA, and PMI/MIP if applicable (PITI or PITIA). Most loans require front-end DTI under 28-31%
- Back-End DTI = (proposed monthly housing payment + all other monthly debt) ÷ gross monthly income. Other debt includes auto loans, student loans, credit card minimums, child support, alimony, and any installment loan obligations. Most conventional loans cap back-end DTI at 43-50%; some specialty programs allow higher
DTI guidelines by loan type
- Conventional conforming: 43-50% back-end DTI for AUS-approved loans, depending on compensating factors (high credit score, large down payment, asset reserves)
- FHA: 43-57% back-end DTI possible with strong credit and reserves
- VA: no hard cap, but residual income standards must also be met
- Non-QM (DSCR, bank statement): DTI is not always calculated the same way; DSCR loans qualify on property cash flow rather than borrower DTI
What counts as income for DTI
Documented W-2 wages, salaried income with at least 2 years of history, self-employment income with 2 years of tax returns averaged, rental income net of expenses, retirement distributions, social security, alimony received, and certain documented investment income. Not counted: unverified income, recent windfalls, cash gifts, and most short-term gig income unless documented and consistent.
