If you’re applying for a mortgage, you’ll often hear about something called your  DTI or  Debt-to-Income Ratio. But what exactly does that mean, and how does it affect your ability to get a loan? 

Let’s break it down using  Fannie Mae and Freddie Mac guidelines, and I’ll explain what counts toward your DTI and what doesn’t, so you can get a clear picture. 

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🧮 What Is DTI (Debt-to-Income Ratio)? 

Your  DTI  is a number that lenders use to assess how much of your monthly income goes toward paying off your debts. In simple terms, it’s a measure of how much debt you have relative to your income. 

This ratio helps lenders understand whether you can handle the extra debt of a mortgage without becoming financially overwhelmed. 

How It’s Calculated: 

Your DTI is calculated by dividing your total monthly debt payments by your gross monthly income (before taxes and deductions). The formula looks like this: 

DTI = Total  Monthly  Debt Payments / Gross Monthly Income × 100

For example, if you earn $5,000 per month and have $1,500 in monthly debt payments (including your new mortgage), your DTI would be: 

1,500 / 5,000 = 30%

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💡 What Counts Toward Your DTI? 

When Fannie Mae or Freddie Mac evaluate your DTI, they’ll count most of your regular debt obligations, including: 

1. Monthly Housing Payments: 

  • Mortgage payments  (principal and interest). 
  • Property taxes  and homeowners insurance  (if they’re part of your monthly payment). 
  • Mortgage insurance  (if applicable, such as for loans with less than 20% down). 

2. Consumer Debt: 

  • Car loans or leases. 
  • Student loans (even if they’re in deferment, lenders often include the monthly payment). 
  • Credit card payments (minimum required payments, not the balance). 

3. Other Loans: 

  • Personal loans. 
  • Child support or alimony payments. 
  • Other debt obligations that require regular monthly payments. 
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🚫 What Doesn’t Count Toward Your DTI? 

Not all of your monthly expenses will be included in your DTI calculation. Here are some of the  common expenses that don’t count: 

1. Cell Phone Bills: 

  • Your monthly phone bill does  not  count toward your DTI. Even though it’s a recurring expense, it’s considered a non-debt obligation. 

2. Utilities: 

  • Electricity,  water,  gas,  internet, and other utility bills are  not  included in DTI. They’re essential, but they don’t affect your ability to repay debt. 

3. Groceries & Food: 

  • Your grocery bills don’t factor into DTI calculations. Only debt obligations (like loans) are considered. 

4. Insurance: 

  • Health insurance  premiums or other types of insurance you may pay for each month don’t count toward your DTI, unless they’re specifically tied to a debt obligation, like  auto insurance  if you’re financing the vehicle. 

5. Subscription Services: 

  • Streaming services like Netflix, Spotify, or even gym memberships are not included in your DTI. They’re expenses, but not debt. 
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🏡 Fannie Mae & Freddie Mac DTI Guidelines 

Fannie Mae and Freddie Mac have specific guidelines when it comes to acceptable DTI ratios: 

  • Front-End Ratio (Housing Ratio): This is the percentage of your income that goes toward your housing-related expenses (mortgage, taxes, insurance, etc.). For conventional loans, the maximum front-end ratio is typically around 28%–31%. 
  • Back-End Ratio (Total Debt Ratio): This includes all of your debt obligations, including your housing costs, car loans, student loans, credit cards, etc. For most conventional loans, the maximum back-end ratio is usually around 36%–43%, depending on your credit score and other factors. 
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🔢 Quick Example: What’s Your DTI? 

Monthly Income Car Loan Student Loan Credit Card Payment Housing Payment (Mortgage, Taxes, Insurance) Total Debt Payments DTI Ratio 
$5,000 $300 $200 $150 $1,500 $2,150 43% 
$5,000 $0 $200 $100 $1,200 $1,500 30% 

As you can see, the DTI calculation can change based on how much debt you have. Lenders will use this ratio to determine how much of a risk they’re taking on when they approve your loan. 

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Final Thoughts 

Your  DTI  is a key factor in getting approved for a mortgage, and understanding how it works can help you plan ahead. The lower your DTI, the more likely you are to get approved for a loan with favorable terms. And while some debts count toward your DTI, things like your  cell phone bill  and  utilities  don’t—so they won’t hurt your chances! 

If you’re getting ready to apply for a mortgage and want to know how your DTI will impact you, feel free to reach out. I can help you understand your financial situation and how to make your application stronger! 

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