What DTI Ratio Do Lenders Actually Want?

If you've been researching mortgages, you've almost certainly encountered the term DTI — debt-to-income ratio. Lenders treat it as one of the single most important factors in mortgage approval, sometimes outweighing credit score. Yet most buyers have only a vague sense of what the number actually means, how lenders calculate it, and what the real thresholds are in practice.

Here's the complete picture, with concrete examples anchored to a $1 million home purchase.

What DTI Actually Measures

Your debt-to-income ratio is the percentage of your gross monthly income (before taxes) that goes toward recurring debt obligations. It's a direct measure of your financial breathing room — the more of your income already committed to debt, the less capacity you have to absorb a mortgage.

Lenders look at two versions:

Front-end DTI (housing ratio): Only your proposed housing costs — mortgage principal and interest, property taxes, homeowners insurance, and HOA fees if applicable. Most lenders prefer this below 28%, though some conventional loans allow up to 36%.

Back-end DTI (total debt ratio): All monthly debt obligations: housing costs plus car loans, student loans, credit card minimums, personal loans, alimony, child support, and any other recurring debt. This is the number lenders focus on most. The general standards in 2026:

The 43% figure has long been cited as the hard cap for "qualified mortgages," though the CFPB has since moved to a more flexible, pricing-based approach. In practice, most lenders still use 43–45% as their working ceiling for conventional loans.

How DTI Is Calculated: A Step-by-Step Example

Let's walk through a real calculation for a $1 million home purchase.

The home: $1,000,000 purchase price, 20% down ($200,000), leaving an $800,000 loan at 6.0%, 30-year fixed.

Monthly housing costs:

Additional monthly debts:

• Car payment: $800

• Student loans: $500

• Credit card minimums: $200

• Total other debt: $1,500

Total monthly obligations: $6,096 + $1,500 = $7,596

DTI calculation:

• Front-end: $6,096 ÷ gross monthly income

• Back-end: $7,596 ÷ gross monthly income

To keep back-end DTI at or below 36%, this buyer needs: $7,596 ÷ 0.36 = $21,100/month gross = ~$253,200/year

To qualify at 43% DTI: $7,596 ÷ 0.43 = $17,665/month gross = ~$211,980/year

What Income You Need for a $1M Home at Each DTI Level

Using the same $1M home scenario with $1,500/month in other debts, here's the income required at each threshold:

The lower your other debt, the lower the income bar. A buyer with no car payment, no student loans, and no recurring debt needs meaningfully less income to qualify at the same purchase price.

The Jumbo Loan Wrinkle

A $1 million home purchase almost certainly involves a jumbo loan — any loan above the 2026 FHFA conforming limit of $832,750. Jumbo lenders typically apply stricter standards:

• Most prefer back-end DTI at or below 38–43% (versus the 45–50% some conventional programs allow)

• Many require a credit score of 720 or higher

• Lenders often want to see 12–24 months of mortgage payments in liquid reserves after closing

• Higher scrutiny of income documentation — two years of tax returns and W-2s are standard

At the $1M+ price point, DTI discipline matters more, not less. A jumbo lender approving a 43% DTI on a $800,000 loan is taking on meaningful risk — and they know it.

What Lenders Don't Include in DTI

Equally important is what doesn't count. DTI only covers legally binding debt obligations. These are not included:

• Groceries, utilities, and everyday living expenses

• Cell phone and streaming subscriptions

• Car insurance premiums

• Childcare costs

• Travel and entertainment spending

This is why a technically low DTI can still mean being house-poor. A buyer with a 36% DTI but $5,000/month in daycare and $2,000 in car insurance may be stretched far thinner than a lender's model suggests.

How to Improve Your DTI Before Applying

If your DTI is higher than you'd like, there are real levers to pull:

Pay down revolving debt first. Credit card balances tend to carry high minimum payments relative to their balance. Eliminating even one card can meaningfully reduce your monthly obligation and shift your DTI.

Don't take on new debt before applying. Car loans, personal loans, or new credit card accounts in the months before you apply will directly reduce your qualifying loan amount.

Increase income (and document it). A bonus, raise, or additional income source helps — but lenders want a documented 24-month history for most income types. Recent income changes are viewed with more skepticism.

Consider a larger down payment. Borrowing less reduces your monthly P&I payment and thus your front-end DTI. On a $1M home, the difference between 15% and 20% down is roughly $600/month in P&I.

Look at your loan term. A 30-year mortgage carries a lower monthly payment than a 15-year — which improves your DTI qualification, even if it costs more in total interest over time.

DTI vs. What You Can Actually Afford

Here's the important distinction lenders won't make for you: qualifying DTI and comfortable DTI are not the same thing.

A lender approving you at 43% DTI means they believe you can repay the loan. It doesn't mean you should take it. At 43% DTI, more than two-fifths of your pre-tax income goes to debt — and after income taxes, the real strain on take-home pay is even higher.

Most financial advisors suggest targeting back-end DTI in the 28–36% range for genuine financial comfort — leaving room to save, invest, and handle the inevitable surprises that come with homeownership.

At the $1M+ price point, understanding the difference between what a lender will approve and what actually works for your life is one of the most valuable things you can do before making an offer.

Use our Affordability Calculator to calculate your current DTI, see how it changes with different loan sizes and down payments, and find the home price that makes sense for your actual financial picture.

Sources

• Freddie Mac Primary Mortgage Market Survey, Feb. 26, 2026 — freddiemac.com/pmms

• Bankrate: DTI ratio for mortgage qualification — bankrate.com

• Rocket Mortgage: Debt-to-income ratio explainer — rocketmortgage.com

• Fannie Mae Selling Guide: B3-6-02, Debt-to-Income Ratios — fanniemae.com

• FHFA 2026 Conforming Loan Limit: $832,750 — fhfa.gov

• All payment figures calculated using standard amortization formula