When it comes to getting a personal loan, mortgage, or credit card, your debt-to-income (DTI) ratio is one of the most important things financial institutions consider. Keeping your DTI ratio for loan approval down shows lenders that you’re generating enough income to repay what you borrow, upping your approval odds.

Below, we’ll define what a good debt-to-income ratio is and why managing it is a wise strategy for keeping control of your finances.

Key Considerations

The debt-to-income ratio measures how much of your income goes toward debt payments, with lower ratios signaling better financial health and higher chances of loan approval.
To calculate your DTI ratio for loan approval, list all monthly debt obligations and divide them by your gross monthly income.
If you need to manage your DTI ratio, consider consolidating debt with a personal loan (to help lower your DTI) or formulating a plan to pay off your highest-interest debt first.
Higher earners can sometimes get approved for a loan even if their DTI is over the recommended threshold.

What is a debt-to-income ratio?

Expressed as a percentage, a debt-to-income ratio (DTI) shows how much of your total monthly income goes toward debt payments each month. This includes all recurring payments such as your mortgage or rent payment and credit card payments.

Lenders look at debt-to-income ratios because historical patterns suggest that borrowers with high DTIs tend to have a harder time making consistent payments. Knowing your DTI—and where it stands on the scale—can help you gauge what loans or credit cards you might be eligible for, whether you want to consolidate debt, pay for large expenses, or buy a home.

What is a good debt-to-income ratio? 

Each lender sets its own DTI requirements, but not all publish them. Personal loans typically have higher allowable maximum DTIs than mortgages.

The following table represents generally acceptable guidelines. The ideal debt-to-income ratio is below 36% for personal loans and below 43% for mortgages. However, some lenders and loan programs might accept higher ratios, especially if you are a high earner.

	DTI thresholds
Personal loans	36%-50%
Mortgages	Conventional loans: max of 50% FHA loans: max of 43% (56.9% with compensating factors) USDA loans: max of 41%
Credit cards	36%-50%

FHA Source; USDA Source

Why high-income borrowers may have higher DTI thresholds

Higher-income borrowers may still qualify for credit products despite a higher-than-preferred debt-to-income ratio. This is because a substantial income can assure lenders that the borrower has enough money to repay the loan, even if the DTI is elevated.

Lenders care about whether you can comfortably afford new payments, and therefore, may view higher-earning borrowers as less risky because they have the capacity to handle unexpected expenses and their monthly obligations, including a new loan payment.

How does DTI affect loan approvals?

As a general rule, lenders offer the best rates and terms to borrowers with low debt-to-income ratios. If your DTI is higher, lenders may require additional collateral for approval or adjust the loan terms to protect their investment.

Borrowers with DTIs higher than 50% have a higher chance of being turned down until they can show an increase in income or less debt.

DTI of 35% or less is considered good: This ratio shows you can manage your debt well. Lenders consider you a safe bet to afford monthly payments, making you a candidate for new lines of credit and favorable rates.
DTI of 36% to 49% presents an opportunity for improvement: While a generally acceptable level of debt in relation to your income, lenders may require additional eligibility criteria to borrow money or offer slightly higher interest rates. Some lenders may still approve your loan if other aspects of your financial profile are strong, such as credit history and additional assets.
DTI of 50% or more needs work to be approved: A higher level of debt suggests that you may struggle to meet debt obligations, especially during unforeseen circumstances. Lenders may limit your borrowing options until you increase your income or reduce your debt.

How to calculate your debt-to-income ratio

To figure out your DTI, add up all your monthly debt payments, divide that total by your gross income, and then multiply the result by 100. DTI is calculated like this:

DTI = (Total monthly debt) / (Gross monthly income) x 100

1. Add up your monthly debt payments

First, calculate your monthly expenses, excluding utilities, groceries, and insurance premiums. Include expenses such as:

Housing: Mortgage, property taxes, HOA dues, homeowners or rental insurance, etc.
Debt: Payments made to personal loans, credit cards, home equity line of credit (HELOC), student loans, car loans, etc.

For example, if your monthly debts include a $2,400 mortgage, $100 HOA dues, $600 car loan, $350 student loan, and $150 in total credit card minimum payments, your total monthly debt is $3,600.

2. Add your gross income

Then, add up the money you earn before taxes and other deductions. Include income sources such as:

W2, self-employment, tips
Investments
Retirement and other benefits like Social Security or pensions

If your annual income is $120,000, your gross monthly income will be $10,000 ($120,000 divided by 12 months).

3. Divide and multiply the result by 100

To calculate your DTI, you’ll divide your total monthly debt by your gross monthly income. Then, multiply the result by 100 to get your DTI percentage.

After dividing your monthly debt ($3,600) by your gross monthly income ($10,000), you’ll get 0.36. Multiply that number by 100, and your DTI ratio is 36%.

How to improve your DTI ratio

If you can boost your income or allocate some savings to pay off debt, you can improve your debt-to-income ratio quickly. But realistically, using up your cash reserves isn’t wise if you’re saving for a home or building an emergency fund.

Here are a few ways you can lower your DTI without exhausting your savings:

Consolidate your debts

If you have high-interest credit card debt, consider applying for a debt consolidation loan or a 0% balance transfer card. By consolidating, you can lower your monthly payments (and your debt-to-income ratio) while also potentially improving your credit score.

FYI: A  personal debt consolidation loan from BHG Financial compiles all your debt into a single, predictable monthly payment. With extended repayment terms of up to 10 years1,2, you may be able to lock in a low, affordable payment.

Pay off high-interest loans first

When it comes to paying off debt with a limited budget, try focusing on your highest-interest debt first using the debt avalanche method while making minimum payments on all other debts. It might take a little longer to pay off that first big debt, but it can actually lower your DTI faster. That’s because more expensive debt (i.e., debts with higher monthly payments) has a bigger impact on your DTI.

Plus, this method could also help you pay off debt faster because you’ll save on interest—money you can allocate to your other monthly payments.

Lower your spending

Spending less can lower your DTI because it helps you avoid increasing your overall debt and allows you to allocate more money to your debt repayment plan. To help you achieve a better DTI ratio, minimize credit card use and create a budget.

Add a co-borrower

If your credit score isn’t as strong as you’d like it to be, you can add a co-borrower with good credit and low DTI to your application. Keep in mind that your co-borrower will assume responsibility for the loan (missed payments could affect their credit), but their credit profile could help boost your approval odds.

What is a good debt-to-income ratio FAQ

What is the highest DTI lenders will accept?

Lenders will still consider borrowers with a DTI as high as 50% for mortgages, personal loans, and credit cards. However, a few lenders are willing to work with borrowers who have a higher ratio if they have substantial income or a strong financial profile.

Does my DTI ratio impact my credit score?

Your debt-to-income (DTI) ratio is different than your credit utilization. Credit utilization is used by the reporting agencies to determine your credit score. It’s a way to compare the amount you owe across all credit accounts against the amount of credit available to you. Your DTI doesn’t directly impact your credit score, but it is one of the criteria lenders use to decide whether to approve you for a new line of credit.

What is a good DTI for a mortgage?

The maximum DTI for a mortgage is 50% for a conventional loan, but 43% for loans backed by the Federal Housing Administration. Requirements vary by lender. Your best chance of getting approved for a mortgage is with a debt-to-income (DTI) ratio under 36%.

Do lenders use front-end or back-end DTI?

While mortgage lenders use both front- and back-end DTI, your back-end ratio tends to hold more weight in applications because it accounts for all your monthly debt payments—credit cards, personal loans, student loans, auto loans, etc.—in addition to your mortgage payment. Front-end DTI focuses solely on housing-related expenses when assessing debt.

How can I lower my DTI quickly?

The fastest way to lower your debt-to-income ratio is to reduce your total debt. You can do this by paying off your highest-interest balances first using the debt avalanche method or reducing your credit card interest rate. Personal loans (with lower interest rates than the ones tied to your existing debts) can also be used to consolidate debt and lower your DTI.

BHG supports your financial health, every step of the way

At BHG Financial, we believe financing should fit seamlessly into your life and goals. That’s why we offer personal loans tailored to your needs, with amounts up to $250,000¹ and flexible terms of up to 10 years.^1,2

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² Personal Loan Repayment Example: A $59,755 personal loan with a 7-year term and an APR of 17.2% would require 84 monthly payments of $1,228.

Annual percentage rates (APRs) for BHG Financial personal loans range from 11.96% to 27.87%, with terms from 3 to 10 years.

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