The DTI Number You Need to Know
People obsess over credit scores, but honestly, your debt-to-income ratio (DTI) is what often determines whether you get approved and how much you can borrow. Let's break down what it is and why it matters so much.
The Basic Math
DTI is just your total monthly debt payments divided by your gross monthly income. Include your proposed mortgage payment (principal, interest, taxes, insurance, and HOA if applicable), plus car loans, student loans, credit card minimums, and any other recurring monthly debt.
So if you make $8,000/month before taxes and your debts total $3,200/month, your DTI is 40% ($3,200 ÷ $8,000).
What Lenders Accept
Conventional loans typically max out at 43-45% DTI, though some programs allow up to 50% if you have strong credit and reserves. FHA loans can stretch to 57% in some cases. VA loans are more flexible, sometimes allowing DTI ratios above 50% with sufficient compensating factors.
But here's the thing: just because you can qualify at 50% DTI doesn't mean you should. That's half your gross income going to debt payments, and after taxes, insurance, and retirement contributions, you might feel pretty squeezed.
What Counts as Debt
Monthly minimums on credit cards count, even if you pay them off every month. Student loans count, even if they're in deferment (lenders will estimate a payment). Car payments, personal loans, and child support all count.
What doesn't count: utilities, insurance (except what's escrowed in your mortgage payment), cell phones, groceries, or entertainment. Those are living expenses, not debt.
How to Improve Your DTI
Option one: increase your income. Easier said than done, but if you're self-employed and showing lower income than you actually make for tax purposes, that will limit your borrowing power. Sometimes it makes sense to show more income for a year or two before applying for a mortgage.
Option two: pay down debt. Even paying off a $400/month car loan can increase your buying power by roughly $60,000 on a mortgage. If you have extra cash sitting around, using it to eliminate monthly debt obligations can be more valuable than using it for a larger down payment.
Option three: don't take on new debt. If you're planning to buy a house in the next year, hold off on financing that new car or taking on more student loans. Keep your debt level stable or declining.
The Co-Borrower Strategy
Adding a co-borrower with income can help your DTI, as long as their debts don't offset the benefit. But adding someone with low income and high debt might actually make your DTI worse. Run the numbers first.
Why This Matters in Colorado Mountain Markets
With property prices high in resort towns, DTI limits often become the binding constraint more than credit score. You might have an 800 credit score, but if the proposed mortgage payment pushes you over 45% DTI, you simply won't qualify for that amount.
This is why it's so important to get pre-approved early. You might think you can afford $700,000, but when we run your DTI, maybe you max out at $625,000. Better to know that before you fall in love with a property you can't actually finance.
Want to know your exact DTI and how much you qualify for? Let's run your numbers—takes about 15 minutes and you'll have real answers.
