# What’s the Ideal Debt-to-Income Ratio for a Mortgage?

When buying a mortgage, your debt-to-income ratio determines how much you will be approved for.

The maximum DTI ratio for most loans is 43%, and in some cases, lenders will allow up to 50%.

 Current Mortgage Rates (December 2020) Loan Term Interest rate APR 30-year fixed-rate 3.05% 3.28% 15-year fixed-rate 2.91% 3.06% 5/1 adjustable-rate 3.05% 3.25%

## What Is the Debt-to-Income Ratio?

Your debt-to-income ratio (DTI ratio) is the amount of your income that goes towards your monthly debt obligations. There are two types of DTI ratios, your

Front-End DTI Ratio â€“ Your front-end ratio is the amount of your income that does towards your debt before factoring in your monthly mortgage payments. Ideally, your front end ratio should not exceed 26%.

Back-End DTI Ratio â€“ The back-end DTI ratio is the amount of your income that goes towards your monthly debt obligations, including your estimated mortgage payment. The maximum back-end DTI ratio is 43%. In some cases, a DTI ratio as high as 50% may be accepted.

## Whatâ€™s the Ideal DTI ratio for a Mortgage

36% is the ideal back-end DTI ratio for a mortgage loan.

Ideally, the maximum debt-to-income ratio lenders prefer to see is 36%. However, 43% is the typical maximum DTI ratio accepted, and in some cases, 50%. But 36% is preferred. It ensures that you have enough money each month to cover any unanticipated expenses.

## How to Calculate Your Debt-to-Income Ratio

• Take your total monthly debt payments, including all loans and credit cards.
• Multiply by 100 to get your debt-to-income ratio.

For example, if your make \$60,000 per year, your gross income is \$5,000 per month.

Find out your total monthly payments on your credit cards, auto loans, and any other loan with set monthly installment payment.

• Auto loan â€“ \$500
• Credit card minimum payments â€“ \$300
• Personal loan â€“ \$200

Your total monthly debt obligations are \$1,000, now divide it by your gross income before taxes (\$5,000) 20% is your front-end DTI ratio.

To find your back-end ratio, your lender will give you your estimated mortgage payment. If the maximum debt-to-income ratio is 43%, then youâ€™re limited to a monthly mortgage payment of \$1,150.

See How Much You Qualify for

## Working with a High DTI Ratio

The maximum debt-to-income ratio lenders accept for a mortgage loan is 43%. In some cases, they can accept ratios as high as 50% if you have compensating factors such as great credit.

#### Compensating Factors

Things such as a high credit score or being with your current employer for many years strengthen your loan application allowing lenders to increase the DTI requirement.

 Compensating Factors * Limited payment shock * 5+ years with the same employer or in the same industry * High income * Large amount in savings * Good credit * 20% down payment * Low debt-to-income ratio below 36% * Residual Income * Limited debt (credit cards, auto loan, etc.)