Mortgage & Home Loans

What is DTI Ratio?

DTI ratio measures how much of your monthly income goes to debt payments. Lenders use it to decide whether you can handle a new mortgage payment.

There are two types. Front-end DTI looks at housing costs alone (principal, interest, taxes, insurance). Back-end DTI includes all your recurring debts—credit cards, student loans, car payments, plus the new mortgage.

In 2020, the CFPB replaced the strict 43% DTI cap under General QM rules with a price-based approach. While there's no hard cap anymore, lenders still must verify your income and debts before issuing a loan.

Quick Facts

Front-End DTIHousing expenses divided by gross monthly income

Back-End DTITotal recurring debt payments divided by gross income

CFPB QM Rule ChangeStrict 43% General QM DTI limit replaced with price-based threshold

Verification RuleLenders must verify income and debt under ATR rules

PRACTICAL EXAMPLE

You earn $8,000 a month gross. Your student loan is $300, car payment $400, and the new mortgage would be $2,100—$2,800 total. Your back-end DTI is 35% ($2,800 ÷ $8,000), well within conventional limits.

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RELATED TERMS

Learn More Key Concepts

MortgageA loan secured by real estate that you pay back in regular installments over a set term.

LTV RatioA lending risk assessment ratio calculated by dividing the outstanding loan balance by the property's appraised value.

Closing CostsThe fees and expenses paid at the end of a real estate transaction to finalize the mortgage and transfer property ownership.

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