Debt-to-Income Ratio Requirements for Mortgages
Your DTI ratio is one of the most important factors mortgage lenders evaluate. Understanding the requirements can help you prepare your finances before applying and maximize your chances of approval.
Conventional Mortgage DTI Limits
Conventional loans backed by Fannie Mae and Freddie Mac follow these general guidelines:
- Standard maximum: 43% back-end DTI
- With compensating factors: Up to 45-50% DTI may be allowed
- Ideal target: 36% or below for best rates
- Front-end (housing) ratio: 28% or below preferred
Compensating factors that may allow higher DTI include: credit scores above 720, significant cash reserves (6+ months of payments), a large down payment (20%+), or stable employment history of 2+ years in the same field.
The 28/36 Rule
The traditional mortgage underwriting guideline suggests:
- 28%: Maximum percentage of gross income for housing expenses (mortgage, taxes, insurance)
- 36%: Maximum percentage of gross income for all debt payments combined
While many lenders have relaxed these thresholds, borrowers who meet the 28/36 rule typically receive the most favorable terms.
Jumbo Loan DTI Requirements
Jumbo loans (above conforming limits of $766,550 in most areas for 2024) tend to have stricter DTI requirements:
- Maximum DTI typically 43% or lower
- Many jumbo lenders cap at 38-40%
- Higher credit scores and reserves are usually required
How Mortgage Lenders Calculate DTI
For mortgage DTI, lenders include:
- The proposed new mortgage payment (PITI: principal, interest, taxes, insurance)
- HOA dues and PMI if applicable
- All existing monthly debt obligations
- Any co-signed loan payments
They use your gross monthly income from all documented sources including salary, self-employment income, rental income, and investment income with a 2-year history.
Tips to Qualify with a Lower DTI
- Pay off credit cards and small loans before applying
- Avoid opening new credit accounts in the 6 months before your application
- Consider a larger down payment to reduce the mortgage amount
- Document all income sources — bonuses, side income, rental income
- If your DTI is borderline, ask about manual underwriting options