Routing # 256078446
MORTGAGE KNOWLEDGE CENTER
PenFed Mortgage with Confidence
MORTGAGE
How to Calculate Debt-to-Income (DTI) Ratio
What you'll learn: What you need to know about calculating debt-to-income ratio for a mortgage.
EXPECTED READ TIME: 6 MINUTES
May 10, 2024
When it comes to getting a mortgage, your lender will look at a number of financial factors to determine if you are eligible. In addition to your credit score, your debt-to-income ratio (DTI) is another important component that will be used to verify your overall financial health and readiness to take on the responsibility of a home loan. It is also used to determine how much home you can afford.
Taking the time to calculate your DTI prior to applying for a mortgage can go a long way in helping you determine if now is the right time for you to buy a home. In this article, we’ll outline what your DTI means to lenders and how you can calculate yours today.
What is a debt-to-income ratio?
DTI is a measure of the portion/percentage of your monthly income that is spent on debt (credit card debt, car loans, and so on) This DTI percentage is used by lenders to determine your overall financial health and ability to take on a monthly mortgage payment on top of your existing debt.
Calculating your debt-to-income ratio
It is essential to calculate your DTI ratio so you can understand how lenders will view your past financial responsibility prior to applying for your mortgage. Here are a few steps you can take to calculate your debt-to-income ratio:
1. Add up all of your minimum monthly payments
In order to accurately determine your DTI ratio, you must include all required and recurring monthly payments. You only have to use the monthly minimum payments in the calculation rather than your account balance or the amount you typically pay. For example, if you have a car lease for $30,000 with a minimum payment of $300, then you should only include the $300 minimum in your calculation.
Below are a few examples of applicable debt that lenders will look at when they are calculating your DTI:
-
- Rent or monthly mortgage payments
- Auto loan payments
- Student loan payments
- Child support or alimony
- Credit card payments
- Personal loan payments
Expenses that you do not need to include in your calculation are:
-
- Utility costs
- Health insurance premiums
- 401(k) or IRA contributions
- Entertainment, food, and other personal expenses
2. Divide your total monthly payments by your gross monthly income
Gross monthly income is the total income you earn every month pretax. Note: If you are planning to apply with a co-signer or another borrower, then you will have to factor their debt and income as well.
Once you have a number for the total gross monthly income, you will divide it by the total of your minimum monthly debt payments.
3. Convert that result into a percentage
Initially, your result will be in decimal form, but your DTI ratio must be expressed as a percentage. In order to calculate that percentage, simply multiply your decimal result by 100.
Here is an example of the DTI ratio calculation in action:
Monthly Debt = $900 minimum monthly payment
Monthly Gross Income = $3,500 pretax
$900 ÷ $3,500 = 0.257
0.257 X 100 = 25.7% DTI ratio
What is a good DTI ratio?
Though it varies depending on your lender’s requirements and the type of mortgage you are applying for, most lenders will accept a DTI ratio of 43% or less. A DTI of 50% or higher is typically regarded as a risk, as it indicates a high amount of debt and signals the borrower may not be able to take on the responsibility of repaying a mortgage.
Remember, the lower your DTI ratio the better. Taking the time to improve your DTI prior to applying for a mortgage will set you up for success with loan approval and more favorable terms.
SIMILAR ARTICLES
What Are the Different Types of Mortgages?
There are several different types of mortgages depending on your situation, credit score, income, amount of money needed, and other factors. See which home loan is best for you.
How Much House Can You Afford? And How Do You Figure It Out?
Learn about how to use a mortgage affordability calculator and other factors that go into a home loan.
Creating Your Home Buying Budget
If you are buying a home, it is essential to know what all of the costs are so you can plan ahead. Find out about the different fees for inspections, closing costs, down payment, and more.
10 Things for First-Time Homebuyers
First-time homebuyers start here! Learn 10 things to consider for the first-time homebuyer. Advice on researching, planning, and more.
Home Buying Steps
Mortgage Products
Disclosures
1Conventional Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
2FHA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
3VA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.125 discount point, which equals 1.125 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $450,000; loan-to-value ratio of 95%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of $995.
4Jumbo Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 0.625 discount point, which equals 0.625 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.
Routing #256078446
©2026 Pentagon Federal Credit Union