Are you worried that debt might stand in the way of your dream home? Whether you’re a first-time homebuyer, a seasoned investor, or a real estate professional advising clients, understanding your Debt-to-Income Ratio (DTI) is one of the most important steps you can take toward getting mortgage-ready.
In this guide, we’ll break down what the DTI is, why it matters, and how you can take actionable steps to improve yours—starting today.
What Is Debt-to-Income Ratio (DTI)?
DTI is a simple but powerful calculation used by lenders to measure your ability to repay a mortgage. It compares your monthly debt payments to your gross (pre-tax) monthly income.
DTI Formula:
DTI = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100
Example:
Let’s say:
- Your monthly debts = $1,500
- Your gross monthly income = $5,000
Your DTI = (1,500 ÷ 5,000) × 100 = 30%
Why it matters: Most lenders prefer borrowers with a DTI of 36% or less, with 43% often being the maximum for qualified mortgages. The lower your DTI, the better your chances of approval—and the more favorable your loan terms may be.
What’s Included in Your DTI?
Here’s what typically counts:
Included in DTI:
- Credit card payments (minimum monthly)
- Car loans
- Student loans
- Personal loans
- Existing mortgage or rent
- Alimony or child support
Not included:
- Utility bills
- Groceries
- Health insurance premiums
- Subscriptions (like Netflix or gym memberships)
How to Lower Your Debt-to-Income Ratio Before Buying
1. Increase Your Income
- Side Hustle: Consider gig work, freelancing, or monetizing a hobby.
- Overtime or Bonuses: If available, these can boost your gross monthly income.
Tip: Lenders often require proof that any secondary income is stable (2+ years), so keep records!
2. Reduce Your Monthly Debt Payments
Here’s how to attack your debt strategically:
- Pay Off Credit Cards Aggressively
- Focus on the avalanche method (highest interest first) or snowball method (smallest balance first).
- Refinance or Consolidate Loans
- You may reduce your monthly payments by consolidating debt at a lower interest rate.
- Avoid New Debt
- Say “no” to new car loans or personal loans before applying for a mortgage.
3. Delay Your Home Purchase (Strategically)
Buying in a rush could mean higher rates or loan rejection. Sometimes waiting 3–6 months to lower your DTI can:
- Increase your purchasing power
- Qualify you for better interest rates
- Reduce your long-term financial stress
Use a Debt-to-Income Ratio Calculator
Want to check your DTI right now?
➡️ Try this Free DTI Calculator
Just plug in your income and monthly debt payments to see where you stand.
Real-Life Comparison: What’s the Impact?
Let’s compare two buyers:
| Buyer | Monthly Debt | Income | DTI | Loan Approved? |
| Alex | $1,000 | $5,000 | 20% | ✅ Yes |
| Jordan | $2,200 | $5,000 | 44% | ⚠️ Risky/No |
Even though both earn the same, Alex is more likely to get approved—and at a better interest rate.
For Real Estate Agents: Coaching Clients on DTI
If you’re an agent, helping your clients understand DTI can build trust and empower smarter decisions.
Quick Tips for Agents:
- Share resources like calculators or lender referrals.
- Help clients create a pre-approval plan.
- Encourage early financial reviews—before house hunting starts.
Need more tips? Check out our guide: “Top Financial Readiness Tips for First-Time Buyers”
Checklist: Steps to Improve Your DTI
Here’s your quick-action plan:
Calculate your current DTI
Review all your monthly debts
Identify high-interest balances to tackle
Explore side income opportunities
Avoid taking on new debt
Reassess after 30-90 days
Further Reading and Tools
Explore more:
- Understanding Mortgage Pre-Approva
- 5 Credit Tips Before You Buy a Home
- How Much House Can I Afford?
Final Thoughts:
Lowering your DTI isn’t just about checking a box—it’s about setting yourself up for long-term success. Whether you’re buying your first home or your fifth investment property, knowing and improving your DTI gives you leverage in the market.
Take action today: Run your numbers, set goals, and don’t hesitate to talk with a trusted lender or real estate professional to create a strategy that works for you.
