Debt-to-Income Ratio Guide
Financial Education Series
Lower Your DTI, Get Better Rates
Your Debt-to-Income ratio is often MORE important than your credit score. Lenders use it to determine how much house you can afford and what rate you'll get. Lower DTI = better mortgage terms.
💡 Why DTI Matters
Your Debt-to-Income ratio is often MORE important than your credit score for mortgage approval. Every 5% you lower your DTI can save you $50-100/month on your mortgage payment.
The Magic Numbers
Excellent - Best rates
Good - Most loans approved
Challenging - Limited options
Difficult - Manual underwriting
How to Calculate Your DTI
DTI = (Monthly Debt Payments ÷ Gross Monthly Income) × 100
Example:
- • Monthly debts: $1,800
- • Gross monthly income: $6,000
- • DTI: ($1,800 ÷ $6,000) × 100 = 30% ✓
5 Ways to Lower Your DTI
Pay Off Small Debts Completely
Target debts with 10-20 months remaining. Paying them off completely removes them from your DTI immediately.
Example: $300/month car loan with 12 months left = $3,600 payoff. This lowers your DTI by 5% if you earn $6,000/month.
Time: Immediate • Impact: 3-10% DTI reduction
Increase Your Income
Take a side gig for 2-3 months before applying. Lenders will count part-time income with just 2 paystubs.
+$800/month side income on $6,000 salary = DTI drops from 30% to 26%
Time: 2-3 months • Impact: 4-8% DTI reduction
Refinance High-Payment Debts
Extend loan terms to lower monthly payments. Sometimes worth it if it gets you approved for a home.
$500/month car payment → Refinance to 60 months → $350/month = 2.5% DTI improvement
Time: 2-4 weeks • Impact: 2-5% DTI reduction
Use Rapid Rescore
Pay down credit card balances and request "rapid rescore" through your loan officer. Updates happen in 2-5 days vs. waiting 30+ days.
Time: 3-5 days • Impact: Speeds up approval process
Add a Co-Borrower
If buying with a spouse/partner, their income counts too. This can dramatically lower your DTI.
Your income: $6,000 + Partner's: $4,000 = DTI drops from 30% to 18%
Time: Immediate • Impact: Major DTI reduction
⚠️ What NOT to Do
- • Don't take on new debt - Even "0% financing" counts against you
- • Don't close old accounts - Hurts credit utilization
- • Don't change jobs - Resets income verification
- • Don't co-sign for anyone - Their debt becomes yours
Real Example: Sarah's DTI Improvement
Before:
- • Income: $6,000/month
- • Debts: $2,880/month
- • DTI: 48% - Denied
After:
- • Paid off $8,000 car loan (-$320/mo)
- • Started freelancing (+$800/mo income)
- • DTI: 39% - Approved at 6.25%
Time to improve: 6 weeks
Ready to Get Pre-Approved?
Now that you understand DTI, see what you qualify for. Get pre-approved in minutes and find out your exact buying power.