To calculate your debt-to-income (DTI) ratio for a mortgage application, divide your total monthly debt payments by your gross monthly income. Lenders use this ratio to assess your ability to manage monthly payments and repay the loan. Here’s a step-by-step process to calculate it accurately:
Step 1: Calculate your gross monthly income
- Include salary, wages, self-employment income, bonuses, commissions, overtime, alimony, and child support
- For W-2 employees: Divide annual salary by 12
- For self-employed or variable income: Average the last 24 months of income and divide by 12
- If applying jointly, add your co-borrower’s gross monthly income
Step 2: Calculate your monthly debt payments
- Include:
- Estimated new mortgage payment (principal, interest, taxes, insurance, PMI)
- Auto loans and leases
- Student loans (even if in deferment)
- Personal loans
- Minimum credit card payments
- Child support or alimony you pay
- Other loans and debt obligations
- Do NOT include:
- Utilities (electric, water, gas, internet)
- Cell phone bills
- Insurance premiums (except those included in mortgage payment)
- Groceries
- Entertainment expenses
Step 3: Calculate your front-end and back-end DTI ratios
- Front-end ratio = (Housing costs ÷ Gross monthly income) × 100
- Back-end ratio = (Total monthly debt payments ÷ Gross monthly income) × 100
Example calculation:
Gross monthly income: $6,000
Estimated mortgage payment: $1,500
Car loan: $350
Student loan: $250
Credit card minimums: $100
Front-end DTI = ($1,500 ÷ $6,000) × 100 = 25%
Back-end DTI = ($2,200 ÷ $6,000) × 100 = 36.7%
Most lenders prefer a back-end ratio of 43% or lower. Conventional loans typically want front-end ratios under 28% and back-end ratios under 36%, though these can vary by lender and loan program.