Your Debt-to-Income Ratio Is Lying to You—Here's What Lenders Actually See
You think your DTI is 30%. Lenders see something different. Understanding this gap could save your mortgage approval—or cost you thousands in higher rates.
You did the math: $4,000 monthly income, $1,200 in monthly debt payments. That's a 30% DTI—well under the 43% most lenders want. You should qualify easily. Then the mortgage lender says your DTI is 42%. What happened?
Why Your Calculation Is Wrong
When you calculate your own DTI, you probably use your take-home pay and actual monthly payments. Lenders use something different: gross income and minimum required payments.
The DTI Formula Lenders Use
(Total Monthly Debt) ÷ (Gross Monthly Income)
What counts as "debt":
- • Mortgage/rent (proposed)
- • Car payments
- • Student loan minimum payments
- • Credit card minimums
- • Child support/alimony
- • Any installment loans
What counts as "income":
- • Gross salary (before taxes)
- • Bonuses (if consistent)
- • Commission (2-year average)
- • Rental income (75% of it)
- • Side income (if documented)
- • NOT investment gains
The 5 Things That Inflate Your DTI
Student loans on IBR/IDR
Your SAVE payment might be $200, but conventional lenders often use 0.5-1% of your balance instead. $80K loan = $400-800/month in their calculation.
Credit card limits (not balances)
Some lenders look at your available credit as potential debt. High limits can hurt even with $0 balances.
Co-signed loans
That loan you co-signed for your kid? It counts as YOUR debt, even if they make every payment.
Property taxes & insurance
Your "housing payment" includes principal, interest, taxes, and insurance (PITI). You might only be thinking about PI.
Variable income not fully counted
Your $20K bonus last year? Lenders might use a 2-year average, or discount it entirely if it's inconsistent.
Front-End vs Back-End DTI
There are actually two DTI ratios lenders care about:
Front-End DTI (Housing)
Just your housing costs divided by gross income.
Ideal threshold:
28%
Back-End DTI (Total)
All debts (including housing) divided by gross income.
Max threshold:
43%
Most people only track back-end DTI. But if your front-end is too high, you might get denied even with an acceptable back-end ratio.
How to Lower Your DTI Before Applying
Pay off small debts entirely
Eliminating a $200/month car payment might help more than paying $2,000 toward a larger debt.
Get removed from co-signed loans
Ask the primary borrower to refinance in their name only.
Document all income sources
Side gig income counts if you can show 2 years of tax returns.
Ask about different loan products
FHA loans allow up to 50% DTI in some cases. VA loans are even more flexible.
Don't open new credit
New accounts add inquiries and potential debt. Avoid new cards, cars, or loans in the 6 months before a mortgage application.
What High DTI Actually Costs You
Even if you qualify, a higher DTI often means worse terms:
| DTI Range | Typical Impact |
|---|---|
| Under 36% | Best rates, easiest approval |
| 36-43% | May need compensating factors (high credit score, large down payment) |
| 43-50% | Limited to certain loan types, higher rates likely |
| Over 50% | Very difficult to qualify; may need non-QM lenders |
The Bottom Line
Your DTI isn't what you think it is. Before you apply for a mortgage, calculate it the way lenders do: gross income, minimum payments, PITI for housing. If the number surprises you, you have time to improve it.
The DTI you present to lenders determines not just whether you qualify—but what you'll pay for the next 30 years.
Improve Your DTI Before You Apply
Plan which debts to pay off first to optimize your ratio.
Debt Payoff Planner