What Is a Good Debt-to-Income Ratio for a Mortgage?
Talk to a Herring Bank Loan Officer Herring Bank · NMLS #415783 · No obligation
A good debt-to-income ratio for a mortgage is 36% or lower, with no more than 28% of your gross monthly income going to the house payment. That is the classic 28/36 rule, and it puts you in the strongest position for approval and pricing. It is not the limit, though. Fannie Mae’s automated underwriting allows up to 50%, FHA manual underwriting goes to 40/50 with compensating factors, and VA’s benchmark is 41%.
Herring Bank is a direct mortgage lender serving Texas, Oklahoma and Colorado. Below you’ll find how to calculate your DTI, the real maximums by loan type, what counts as debt, and why Texas property taxes change the math.
Key Takeaways
- Front-end DTI is your housing payment divided by gross monthly income. Back-end DTI adds every other monthly debt payment.
- Under 36% back-end is strong. 36% to 45% is common and approvable. Above 45%, approval depends on credit, reserves and automated findings.
- Maximums: conventional up to 50% through Fannie Mae's DU; FHA manual 31/43 to 40/50; VA 41% plus residual income; USDA 29/41.
- Texas property taxes can add $200 or more a month compared with a lower-tax state on the same house, which raises your front-end ratio.
- The fastest DTI fixes are paying off small installment balances, paying down credit cards and adding a co-borrower's income.
What DTI means: front-end vs. back-end ratio
Lenders look at two ratios. Both use gross monthly income, meaning income before taxes and payroll deductions.
- Front-end ratio (housing ratio): your projected house payment divided by gross monthly income. The house payment is PITI (principal, interest, property taxes and homeowners insurance) plus mortgage insurance and HOA dues.
- Back-end ratio (total DTI): the house payment plus all other monthly debt payments, divided by gross monthly income. When a lender or a program quotes a single DTI limit, this is the number it means.
Under the CFPB’s Ability-to-Repay rule (12 CFR 1026.43), a lender must consider your monthly DTI or residual income and verify the debts and income behind it before it makes a mortgage. The old fixed 43% cap for Qualified Mortgages was replaced by a price-based test, so today the DTI limits that matter come from Fannie Mae, Freddie Mac, FHA, VA and USDA, plus any limits the lender adds.
How to calculate your DTI (worked Texas example)
The formula is simple: total monthly debt payments ÷ gross monthly income × 100. Here is a full example for a Fort Worth-area buyer looking at a $325,000 home with an FHA loan. The rate, tax and insurance figures are illustrative assumptions, not a quote.
| Step | Amount |
|---|---|
| Gross monthly income (household) | $8,000 |
| FHA loan: 3.5% down, base loan $313,625, plus 1.75% upfront MIP financed = $319,113 at an example 6.5% rate. Principal and interest | $2,017 |
| Property taxes at an assumed 2.0% combined rate | $542 |
| Homeowners insurance (assumed) | $250 |
| FHA annual MIP at 0.55% | $144 |
| Housing payment | $2,952 |
| Car loan | $450 |
| Student loan | $250 |
| Credit card minimum payment | $100 |
| Total monthly debts | $3,752 |
| Front-end ratio ($2,952 ÷ $8,000) | 36.9% |
| Back-end ratio ($3,752 ÷ $8,000) | 46.9% |
What this buyer can do:
- Under FHA manual underwriting, 36.9/46.9 needs at least one compensating factor (37/47 tier), such as verified cash reserves or a minimal increase over current rent.
- Through FHA’s automated TOTAL Scorecard, a file like this often gets an approval if credit and reserves are solid.
- Paying off the car loan drops the back-end ratio to 41.3%.
- Dropping the price to $290,000 cuts the housing payment to about $2,661 and the ratios to 33.3/43.3.
To see how lenders turn these ratios into a price range, read how much house you can afford on a $200K salary in Texas.
What is a good debt-to-income ratio? The 28/36 rule vs. real lender limits
The 28/36 rule says to keep the house payment at or below 28% of gross income and total debts at or below 36%. It is a comfort guideline, not an underwriting rule. Here is how to read your own number.
| Back-end DTI | What it usually means |
|---|---|
| Under 20% | Excellent. Room in the budget for savings, repairs and rate changes on other debts. |
| 20% to 36% | Good. Meets the 28/36 guideline and Fannie Mae’s base manual-underwriting limit. |
| 36% to 43% | Acceptable on every major program. Credit score and reserves start to matter more. |
| 43% to 50% | Approvable through automated underwriting (DU, LPA, TOTAL) with strong credit or reserves. Manual files need compensating factors. |
| Over 50% | Above the conventional maximum. Possible only on some FHA automated approvals or VA files with strong residual income. |
A good DTI for approval and a good DTI for your budget are not the same. Lenders use gross income, but you pay bills from take-home pay. A 45% DTI can leave very little each month after taxes, retirement contributions and childcare, none of which count in DTI.
Maximum DTI by loan type (conventional, FHA, VA, USDA, jumbo)
| Loan type | Standard limit | Maximum and conditions | Source |
|---|---|---|---|
| Conventional (Fannie Mae) | 36% manual | 45% manual with credit score and reserve requirements; 50% for files underwritten through Desktop Underwriter | Selling Guide B3-6-02 |
| FHA | 31/43 (no compensating factors) | Manual: 37/47 with one compensating factor, 40/40 with no discretionary debt, 40/50 with two. Scores below 580 are capped at 31/43. Automated approvals can exceed these. | HUD Handbook 4000.1 |
| VA | 41% total DTI | Above 41% needs supervisor justification unless residual income beats VA’s guideline by at least 20% | 38 CFR 36.4340 |
| USDA guaranteed | 29% housing / 41% total | Higher ratios allowed with compensating factors or an approval from USDA’s automated system | 7 CFR 3555.151 |
| Jumbo | Set by each lender | Often 40% to 43% or lower, with larger reserve requirements. Herring jumbo loans require at least 20% down. | Lender guidelines |
Max DTI for an FHA loan
The max DTI for an FHA loan depends on how it is underwritten. HUD’s manual-underwriting table tops out at 40/50 with two compensating factors, such as verified cash reserves, a minimal increase in housing payment, significant additional income not counted in qualifying, or residual income. Borrowers with scores below 580 or no score can’t exceed 31/43. Files approved by TOTAL Scorecard can go higher; Herring’s Texas FHA loan page describes back-end ratios up to 56.99% with compensating factors.
Max DTI for a conventional loan
Fannie Mae caps DTI at 50% for loans run through Desktop Underwriter and 45% for manually underwritten loans that meet its credit score and reserve requirements. Freddie Mac’s Loan Product Advisor works in a similar range. See Herring’s conventional home loans for current program details.
VA: DTI plus residual income
VA treats DTI and residual income as the two primary standards. Residual income is what’s left each month after taxes, the house payment, debts and estimated maintenance. For loans of $80,000 or more in the South region, which includes Texas and Oklahoma, VA’s guideline is $1,003 a month for a family of four. Colorado is in the West region, where the same family needs $1,117. Lenders can reduce the figures by at least 5% for active-duty members or retirees who use a nearby military base.
What counts as debt (student loans, child support, car leases)
Lenders count monthly payments on debts that show up on your credit report or in legal documents. They don’t count living expenses.
| Counts in DTI | Does not count in DTI |
|---|---|
| New house payment (PITI, mortgage insurance, HOA) | Utilities, phone and internet |
| Car loans and car leases (Fannie Mae counts leases regardless of how many months remain) | Groceries, gas, insurance other than homeowners |
| Credit card minimum payments | Childcare and tuition you pay voluntarily |
| Student loans, including deferred loans | Retirement contributions and payroll taxes |
| Personal loans, installment loans with more than 10 months left | Medical bills not in collection or on a payment plan |
| Child support and alimony you are ordered to pay | Subscriptions and memberships |
| Payments on other properties you own |
Student loan payment rules
Student loans trip up more buyers than any other debt, because the payment a lender uses may not be the payment you make.
- Fannie Mae: uses the payment on the credit report or your statement. If it shows $0, the lender can use $0 if you’re on a documented income-driven plan. For deferred loans or loans in forbearance, it uses 1% of the balance or the fully amortizing payment.
- FHA: uses the reported or documented payment when it’s above zero. If the credit report shows $0, the lender uses 0.5% of the outstanding balance.
On a $40,000 balance with a $0 reported payment, that’s $400 a month in DTI for a deferred loan under Fannie Mae’s 1% option and $200 a month under FHA. That gap alone can decide which program approves you.
Child support and alimony
Court-ordered payments that continue more than 10 months count as debt. Fannie Mae lets lenders subtract alimony or separate maintenance from income instead, which produces a slightly better ratio.
Why Texas property taxes and insurance push DTI up
Texas has no state income tax, but it funds schools and local government heavily through property taxes, and those taxes go straight into your front-end ratio. In the example above, taxes at an assumed 2.0% rate cost $542 a month on a $325,000 home. The same house at a 1.2% rate would cost about $217 less a month, and that $217 is worth roughly 2.7 points of DTI on an $8,000 income.
Three Texas-specific moves help:
- Use the right tax rate. Ask your loan officer to use the actual combined rate for the property’s school district, city, county and special districts. Rates vary widely between neighboring subdivisions, especially those with MUD or PID assessments.
- Know the homestead exemption. Texas school districts must exempt $140,000 of a homestead’s value, with an extra $60,000 for owners 65 and older or disabled (Texas Comptroller). You apply after you own and live in the home, so many lenders qualify you on the seller’s tax bill or an estimate. See how the Texas homestead exemption works.
- Shop insurance early. Wind and hail coverage in much of Texas is expensive. Get a real homeowners quote before you write an offer so your DTI doesn’t jump in underwriting.
How to lower your DTI before you apply
- Pay off small installment loans. Clearing a car loan or personal loan removes the entire payment. Fannie Mae can leave out installment debts with 10 or fewer payments left unless they significantly affect your ability to pay.
- Pay down credit cards. Lower balances lower the minimum payment and usually raise your score.
- Fix student loan payments. If your report shows $0, get documentation of your actual income-driven payment. It may be far below the 0.5% or 1% the lender would otherwise use.
- Add a co-borrower. A spouse or family member on the loan adds income, along with their debts.
- Count all eligible income. Overtime, bonus, part-time and VA disability income can count with the right history and documentation.
- Change the loan, not just the price. A larger down payment, a different program or a lower rate after paying points reduces the house payment.
- Don’t open new credit. A new car payment before closing can push you over the limit and force the lender to re-underwrite.
If your DTI is fine but your score isn’t, read what credit score you need to buy a house in Texas. For the preapproval process itself, see our mortgage preapproval guide.
Herring Bank NMLS #415783 | Member FDIC | Equal Housing Lender. This article is for educational purposes only and does not constitute financial, legal or tax advice. It is not a commitment to lend. Loan programs, rates and eligibility requirements are subject to change without notice. Payment examples use assumed rates, taxes and insurance and are not a quote.
Frequently Asked Questions
Ready to take the next step?
This article is for educational purposes only and does not constitute financial, legal, or tax advice. It is not a commitment to lend. Loan programs, rates, and eligibility requirements are subject to change without notice. Consult a qualified professional before making financial decisions.
