The debt-to-income ratio (DTI) is a percentage that shows how much of a person’s income is used to cover his or her recurring debts. Lenders calculate DTI at the monthly level using the borrower’s gross, or pre-tax, income.

Calculate your DTI ratio by dividing your total monthly debts by your gross (pre-tax) monthly income. For example, if my recurring monthly debts total $2,000, and my gross monthly income is $6,000, I have a DTI ratio of 33% (2,000 ÷ 6,000 = 0.33, or 33%).

2015 DTI Limits for FHA Loans: 31% / 43%

According to official FHA guidelines, borrowers are limited to having debt ratios of 31% on the front end, and 43% on the back end. Here are the relevant excerpts from the HUD Handbook:

  • Front end: “The relationship of the mortgage payment to income is considered acceptable if the total mortgage payment does not exceed 31% of the gross effective income.”
  • Back end: “The relationship of total obligations to income is considered acceptable if the total mortgage payment and all recurring monthly car payments, credit cards, alimony, etc. do not exceed 43% of the gross effective income.”

Compensating Factors

On the surface, this suggests that borrowers with DTI numbers above the stated limits could have a harder time qualifying for FHA loans. But that’s not always the case. There are exceptions to the official debt-to-income caps.