What your debt-to-income ratio actually is
Understanding your debt-to-income ratio for a mortgage is simple: it is a fraction comparing your monthly debt payments against your gross income. Monthly debts go on top. Gross monthly income goes on the bottom. Lenders use that percentage to judge whether the payment you want is a payment you can carry. The Consumer Financial Protection Bureau defines it that way: add the monthly debt payments, divide by gross monthly income, and that is the ratio.
The internet still talks as if 43 percent is the law. It is not. The CFPB removed the 43 percent General Qualified Mortgage cap and replaced it with a price-based test. What still matters is the investor or agency that would buy or insure the loan, plus any overlay the wholesale lender adds on top. Fannie Mae, FHA, and VA do not use the same test.
If you are shopping in St. Louis, St. Louis County, St. Charles, or Metro East Illinois, the ratio is also local. Property taxes, homeowners insurance, and HOA dues sit inside the housing payment. Those line items have been rising in this market. A payment that looked comfortable last year can push the ratio up even if your car loan did not change.
How to Calculate Your Debt-to-Income Ratio for a Mortgage
The CFPB’s worked example is the cleanest one in public: $1,500 housing + $100 auto + $400 other debts = $2,000 in monthly debts. Gross monthly income of $6,000. $2,000 divided by $6,000 is 33 percent. That is the total, or back-end, ratio.
There is often a second number, the housing ratio or front-end ratio. That is only the proposed housing payment divided by the same gross income. FHA still talks about both. Fannie Mae’s current Selling Guide topic on DTI does not set a separate front-end cap for conventional loans underwritten to Fannie Mae. VA’s primary test is residual income, not the percentage.
Gross income is before taxes. Do not divide by take-home pay and then compare the result to investor guidelines. You will scare yourself with a number no underwriter is using.
What usually counts as debt:
- The proposed principal, interest, taxes, insurance, and mortgage insurance, plus HOA or condo dues on the home you want
- Minimum payments on revolving accounts
- Installment loans (auto, personal, student) that still have a payment
- Lease payments, even if the lease is almost over
- Court-ordered child support or separate maintenance that continues
- Other housing you will still pay, such as a current mortgage you are not selling in time
Fannie Mae’s Selling Guide B3-6-02 (updated April 2, 2025) is specific about what goes into total monthly obligation: the housing payment, installment debts that run more than ten months, revolving payments, leases regardless of end date, and alimony that is not instead deducted from income. Installment debts with ten months or less can still count if they significantly affect the ability to meet credit obligations. Student loans count. How the payment is calculated depends on the program and whether a documented payment appears on the credit report.
What often does not count the way people think:
- Utilities, groceries, and cell phones (those are residual-income problems on a VA loan, not conventional DTI)
- A debt that will be paid off at closing with documented proceeds, when the program allows it
- Authorized-user accounts that are not the borrower’s obligation, when the program allows the exclusion and the documents support it
Do not guess. A $40 student-loan listing on the credit report can be calculated as a much larger qualifying payment if the program uses a percent-of-balance rule. That is one of the first things we check.
What Fannie Mae, FHA, and VA actually publish
These are investor and agency rules, not a promise that any one lender will buy the loan. Lenders may be tighter. We shop more than one.
Conventional (Fannie Mae)
Fannie Mae Selling Guide B3-6-02, Debt-to-Income Ratios, dated April 2, 2025:
- Manually underwritten loans: maximum total DTI is 36 percent of stable monthly income. It can go up to 45 percent if the borrower meets the credit-score and reserve requirements in the Eligibility Matrix.
- Desktop Underwriter casefiles: maximum allowable DTI is 50 percent.
- Some transaction types are tighter, including certain cash-out refinances and loans with a non-occupant coborrower. Government loans follow the government agency, not this topic.
If new debt or lower income shows up before closing, Fannie Mae requires a recalculation. If the new total exceeds 45 percent on a manual loan or 50 percent on a DU casefile, the loan is not eligible for delivery to Fannie Mae. That is why taking on a car payment after preapproval is not a small change.
FHA
HUD’s Single Family Housing Policy Handbook 4000.1 uses 31 percent housing and 43 percent total as the standard ratios on many manually underwritten loans. HUD allows higher ratios when its compensating-factor rules are documented. Automated underwriting through TOTAL can accept a higher total ratio when the rest of the application supports it. HUD does not publish one hard ceiling that applies to every path, and wholesale lenders often add their own cap.
VA
VA underwriting is residual-income first. Residual income is what is left after taxes, the shelter payment, and counted debts, compared with a table that varies by region and household size. VA’s credit-standards training says the ratio is a secondary evaluator. A common guideline is 41 percent. Above that, the underwriter looks at whether residual income exceeds the guideline by more than 20 percent, or documents other compensating factors. If the ratio is over 41 percent and residual income is not 20 percent above the guideline, a supervisor sign-off on the loan analysis is required.
The old 43 percent Qualified Mortgage rule
In December 2020 the CFPB issued a final rule that removed the 43 percent DTI limit from the General Qualified Mortgage definition and replaced it with price-based thresholds. Ability-to-repay still has to be determined. The 43 percent figure is history as a federal QM cap. It is not history as a number you will hear, because people keep repeating it.
Why St. Louis numbers move the ratio
The housing payment is not only principal and interest. In this metro it often includes:
- City of St. Louis or county property taxes, which vary hard by municipality
- Homeowners insurance, which has been a real cost shock in Missouri
- HOA or condo dues in places like Central West End condos, newer St. Charles subdivisions, and some Kirkwood or Webster infill
- Flood insurance if the property needs it
Two buyers with the same income and the same car payment can have different ratios on the same list price if one house sits in a high-tax, high-insurance, high-HOA pocket and the other does not. If you work in Illinois or are buying in Metro East, the same math applies under Illinois property-tax and insurance numbers. Better Rate Mortgage is licensed in Illinois. The ratio does not care which side of the river the W-2 was printed on. The tax bill does.
For the broader budget question, start with our affordability guide. For property rules that change the payment, see deed restrictions in St. Louis.
What to do if the ratio is high
A high ratio is information, not a verdict.
- Pay down a revolving balance so the minimum payment drops before we pull a new credit report.
- Wait out or pay off a short installment loan if the program will then exclude it.
- Document income the first calculation missed: overtime with a history, a second job that meets seasoning rules, or a non-taxable benefit that can be grossed up under that program.
- Choose a different loan type. FHA or VA may fit a borrower conventional DU will not, or the reverse.
- Choose a different house. A lower tax and insurance load is a DTI strategy.
- Do not open new credit, cosign, or finance a car after preapproval.
The $5,000 Pre-Approved Homebuyer Guarantee does not waive DTI. It backs a preapproved offer when the buyer qualifies for the guarantee and follows the process. Underwriting still has to work.
Questions buyers actually ask
1. Is a 50 percent DTI automatically a no?
Not automatically. Fannie Mae allows up to 50 percent on DU casefiles. Manual conventional is lower. FHA and VA use different tests. A lender overlay can still say no. It depends on the program, the rest of the application, and the investor.
2. Does my student loan count if I am on a payment pause?
Often yes. Many programs still impute a qualifying payment when the credit report shows $0. The formula is program-specific. Bring the latest student-loan statement. Do not assume a pause means a zero.
3. Why did my preapproval letter use one number and the underwriter another?
Preapproval is an early read. Underwriting uses the credit report, tax returns or paystubs, title and HOA documents, and the appraisal. New debt, a job change, or a higher tax estimate will move the ratio. Fannie Mae requires a re-underwrite when the increase is material.
4. Can I use a bank-statement or DSCR loan if W-2 DTI does not work?
Sometimes. Those are different products with different tests. They are not a way to ignore debts. They change how income is counted. Ask us which path fits before you write an offer.
Check my rate or call (314) 361-9979. We will run the ratio the way the investor will see it.
