A good debt-to-income (DTI) ratio for mortgage approval is generally 43% or lower, calculated by dividing your total monthly debt payments by your gross monthly income. However, ideal DTI ratios vary by loan type and lender requirements.
For conventional loans backed by Fannie Mae and Freddie Mac:
- 36% or lower: Excellent, provides the best approval odds and interest rates
- 37-43%: Good, still widely accepted with strong applications
- 44-45%: Borderline, may require compensating factors like excellent credit or larger down payment
- 46-50%: Challenging, possible with strong compensating factors but with fewer lender options
- Over 50%: Very difficult for conventional loans, consider government-backed alternatives
Government-backed loans typically allow higher DTI ratios:
- FHA loans: Up to 43% standard, but can go as high as 50% with compensating factors
- VA loans: Use a different “residual income” approach, but generally allow up to 41% DTI
- USDA loans: Typically cap at 41%, but can go to 44% with strong credit
Lenders calculate two DTI ratios:
- Front-end ratio: Housing costs only (mortgage payment, taxes, insurance) divided by gross income
- Back-end ratio: All debt payments including housing costs divided by gross income
While back-end ratio is more commonly referenced, some loan programs still consider both. For the best approval odds and terms, aim to keep your DTI below 36%, or at minimum below 43%.