Too many buyers with good credit get denied because their debt to income ratio is too high. Understanding exactly what lenders count as debt, how DTI is calculated, and what underwriters look for can be the difference between a yes and a no. Here is a clear, straight-talking breakdown so you can get your file ready before you apply.

What is your Debt to Income Ratio (DTI)?

DTI is a simple percentage: the total of your monthly debt payments divided by your gross monthly income. Gross income means your income before taxes and deductions. For W2 employees and documented on-the-job income, we always use gross income.

Example: if your gross income is $5,000 per month and your total monthly debt payments are $2,000, your DTI is 40 percent.

“When we calculate your debt to income ratio, we’re looking at your gross income.”

What counts as “debt” in your DTI?

Lenders use the minimum payment amounts reported on your credit report. If you pay more each month, great — but the underwriter will use the minimum required payment for the DTI calculation.

• Credit card minimum payments (Visa, MasterCard, AmEx, Discover, store cards, gas cards)
• Car payments and other installment loans
• Personal lines of credit and HELOC minimum payments
• Student loans (based on repayment amount or calculated payment if deferred)
• 401k or retirement plan loan repayments (these are treated as debt)
• Monthly HOA dues (important: included in DTI even though not part of PITI)
• Any cosigned loans you are responsible for

Example detail: if you have a $500 credit card balance with a $25 minimum payment, the underwriter will count the $25 toward your monthly debts.

Items that might not show on credit reports but matter

Things like rent-to-own payments for furniture, electronics, or appliances usually do not appear on your credit report. But underwriters will see recurring withdrawals on your bank statements. If you have consistent payments going out for these agreements, treat them as debt when preparing your file. If possible, pay them off before applying or include them in your budget so the underwriter sees a clean picture.

PITI, HOA, and Reserves — what underwriters want

PITI stands for Principal, Interest, Taxes, and Insurance. That is your total house payment used for qualifying. Note that HOA dues are NOT part of PITI, but they ARE included in your DTI calculation.

Reserves are liquid funds you have left after closing. Underwriters typically like to see two months of PITI in reserves, although more is better. Reserves must remain in an account with your name on it after you bring funds to closing.

Example: if you bring $5,000 to closing and your monthly PITI is $1,500, you should still have at least $3,000 left in your account (two months of PITI) after closing.

“Reserves is the money you’re going to have left once you close… we normally like to see two months reserves.”

Typical DTI limits by loan type

• Conventional loans: often around 36 percent, though this can vary
• FHA loans: commonly up to 41 percent; sometimes lenders will allow 44 percent with compensating factors
• USDA loans: I have seen allowances up to 50 percent in rare cases with strong compensating factors

Every program has its own overlay and automated systems vary. When higher DTI is allowed, it is almost always because other compensating factors make the file stronger.

Compensating factors that help when DTI is high

• Long job history or two-plus years on the same job or in the same field
• High credit score and a strong credit mix (installment plus revolving accounts with on-time history)
• Large down payment
• More months of reserves (three, six, or more months of PITI)
• Consistent additional income with documentation

Compensating factors tell the underwriter you are less risky even if your DTI is above the typical threshold. Build these into your file before applying.

Child support and undocumented income

If you pay or receive child support, it can affect your DTI. If child support is not through the court, underwriters will require documentation that it is received consistently and for how long it is expected to continue. The standard assumption is child support ends when the child reaches majority, usually 18 or when they graduate high school.

What to provide if you receive child support:

• Birth certificate for the child so underwriter can determine age
• Bank statements showing consistent deposits over many months
• A signed letter explaining how long payments have been coming and how they are received

Write a clear explanation letter. I read those and they answer a lot of questions up front. If you show a history of consistent deposits and give me documentation, I am less likely to dig deeper and delay your file.

Practical steps to improve your DTI before you apply

1. Pay down revolving balances to lower minimum payments reported.
2. Pay off small installment debts you can eliminate quickly.
3. Avoid new credit inquiries or opening new accounts before applying.
4. Increase your liquid reserves by saving more before closing.
5. Document any consistent extra income (child support, side job) with bank statements and a letter.
6. If possible, get on the job longer or show stability in your field; avoid job-hopping right before applying.
7. Address rent-to-own agreements: pay them off or reduce them before underwriting sees recurring withdrawals.

Final thoughts

DTI is one of the most common reasons buyers get denied, and it is often avoidable. Know exactly what lenders will count against you so you can fix it in advance. Build compensating factors — more reserves, stronger credit, larger down payment, and job stability — and your chances improve dramatically. Get your file in the best shape possible before it lands on an underwriter’s desk.

If you understand what counts and prepare ahead, you can make sure your DTI helps you get the home you want instead of costing you the opportunity.