What Is Debt-to-Income Ratio (DTI) in Real Estate?

Your Debt-to-Income Ratio (DTI) measures how much of your monthly income goes toward paying debts. Lenders use DTI to determine whether a borrower can comfortably manage a mortgage payment.

✅ How DTI Works

DTI compares your monthly debt payments to your gross monthly income. It includes recurring obligations such as:

  • Credit cards
  • Student loans
  • Auto loans
  • Personal loans
  • Existing housing payments

DTI Formula:

DTI = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100

Example:

  • Total monthly debts: $1,800
  • Gross monthly income: $6,000
  • DTI = 30%

📊 Why DTI Matters When Getting a Mortgage

DTI is one of the most important metrics lenders evaluate. A lower DTI indicates stronger financial stability and a higher chance of mortgage approval.

  • Approval likelihood: Lower DTI improves approval odds.
  • Better loan terms: Strong DTI may mean lower rates and more options.
  • Avoids overextension: Helps ensure borrowers can safely manage payments.
  • Required by loan programs: Conventional, FHA, VA, and USDA loans all have DTI limits.

Most lenders prefer a DTI of 43% or lower, though some programs allow higher.

💡 Front-End vs. Back-End DTI

Lenders often look at two versions of DTI:

  • Front-End DTI: Only housing costs (mortgage, taxes, insurance).
  • Back-End DTI: Housing costs + all other monthly debts.

Back-end DTI is the most important metric for mortgage approval.

🏡 DTI & FSBO Transactions

FSBO sellers benefit from understanding DTI because it affects buyer qualification strength. Buyers with high DTI ratios may face financing delays or stricter underwriting.

A buyer with a lower DTI is typically a more reliable candidate—better approval odds, fewer surprises, and smoother closings.

Learn more lending basics in the Mortgage Guide.