Debt-to-Income Ratio: The Hidden Gatekeeper of Mortgage Approval
When it comes to getting approved for a mortgage, most people focus on their credit score and down payment. While those are important, there’s another factor that carries just as much weight: your debt-to-income ratio (DTI). This number compares your total monthly debt payments to your gross monthly income, and lenders use it to determine whether you can realistically handle a new mortgage payment. Many buyers are surprised to learn that even with a great credit score, a high DTI can lead to a loan denial.
DTI is calculated by adding up all your monthly debt obligations, such as car payments, student loans, credit card minimums, and personal loans, and dividing that by your gross monthly income before taxes. While housing expenses are included in this equation, the focus during preapproval is on your existing debts and how much room you have left in your budget for a mortgage. Most investors prefer a DTI of 43% or lower, but the lower you can get it, the better your chances of approval and securing a favorable interest rate.
One of the reasons DTI trips people up is that it doesn’t just account for big-ticket debts. Even smaller obligations like store credit cards or personal loan payments can push your ratio over the limit. This is why getting prequalified early is so valuable; it gives you a chance to identify which debts might be holding you back. Paying down certain balances or restructuring loans before applying can make a meaningful difference in your approval odds and loan terms.
Keep in mind, lowering your DTI isn’t necessarily about eliminating debt entirely. Sometimes it’s about strategically paying off certain accounts, consolidating high-interest loans, or even increasing your income with a side hustle. Lenders look at the ratio as a measure of financial balance, so even small adjustments can improve your position. The key is to address it before you’re in the thick of house-hunting, when timing and competition are working against you.
Your debt-to-income ratio is one of the most important numbers in your mortgage journey, and understanding how it works can be the difference between an immediate approval and a “maybe later.” If you’re considering buying a home in the near future, take the time to understand your current DTI and how to improve it. Contact your Ellason Mortgage Group loan originator today to find out where you stand and what steps you can take now to be in the best position for your mortgage approval.
