Question 1

What's the difference between front-end and back-end DTI?

Accepted Answer

Front-end DTI (housing DTI) is just your proposed housing payment (PITI) divided by gross monthly income. Back-end DTI (total DTI) includes PITI plus all minimum monthly debt payments — car loans, student loans, credit card minimums, personal loans, and any other installment or revolving debt. Lenders care about both, but back-end DTI is the binding constraint for most buyers.

Question 2

What income counts for DTI calculation?

Accepted Answer

Lenders count gross (pre-tax) income from all documented sources: salary, hourly wages (averaged), bonuses and commissions (typically 2-year average), rental income (typically 75% of market rent), Social Security, pension, investment income (documented), and self-employment income (based on 2-year average from tax returns). Undocumented income cannot be counted.

Question 3

How can I lower my DTI to qualify for a larger mortgage?

Accepted Answer

Three approaches: 1) Increase income (co-borrower, side income documentation). 2) Pay off or pay down revolving debt to reduce minimum payments. 3) Reduce the loan amount (larger down payment or lower purchase price). Paying off a car loan eliminates a minimum payment entirely; paying down credit card balances below minimums has the same effect.

Question 4

Does student loan debt count against my DTI?

Accepted Answer

Yes — student loans count against back-end DTI based on the minimum monthly payment. For loans in deferment or income-based repayment, lenders typically use 0.5–1% of the outstanding balance as the monthly payment if the actual payment is $0. On $80,000 in student debt, that could be $400–$800/month counted against your DTI.

Question 5

Can I qualify with a higher DTI in special circumstances?

Accepted Answer

Yes — both Fannie Mae and Freddie Mac allow DTIs above 45% (up to 50%) with compensating factors: significant cash reserves, high credit score, large down payment, or minimal payment shock vs. current housing costs. FHA allows up to 50% DTI with compensating factors. Manual underwriting with strong compensating factors can also allow higher ratios.

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Frequently Asked Questions