If you're preparing to buy a home in Texas, you’ve probably heard about credit scores, down payments, and pre-approval. But there's one key number that plays a major role in your mortgage approval that doesn’t get talked about enough: your DTI — Debt-to-Income Ratio.

Mortgage lenders use your DTI as a key metric to determine how much you can afford and whether they should approve you for a loan. In a competitive 2025 real estate market, especially in fast-growing areas of Texas like Sugar Land, Dallas, or Austin, understanding your DTI can give you a major edge.

Let’s break down what DTI is, how it’s calculated, what’s considered a healthy range, and how to improve it to qualify for the best mortgage options.

📘 What Is Debt-to-Income Ratio?

Your debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes toward paying debts. It shows lenders whether you can comfortably take on a new mortgage payment based on your current obligations.

In short: DTI = Total Monthly Debt Payments ÷ Gross Monthly Income

🔢 Example of a DTI Calculation

Let’s say your monthly debts include:

• $300 car payment

• $200 student loan

• $100 minimum credit card payments

• Estimated $2,000 mortgage payment (principal, interest, taxes, insurance)

That totals $2,600 in debt payments.

If your gross monthly income is $7,000:

$2,600 ÷ $7,000 = 0.371 or 37.1% DTI

This percentage is what lenders evaluate when deciding your loan eligibility.

📊 What Is a Good DTI Ratio?

Each loan program has different limits, but here’s a general guide:

DTI Range & Interpretation:

Under 36% = Excellent – strong borrower profile

36–43% = Acceptable for most conventional loans

43–50% = Common approval threshold for FHA/VA loans

Above 50% = High risk – may need compensating factors

✅ Conventional Loans prefer DTI under 43%.
✅ FHA Loans may allow up to 50%+ with strong credit and reserves.
✅ VA Loans have no strict limit but typically keep DTI under 50%.

🧠 Why Lenders Care About DTI

Even if you have a high income or stellar credit score, a high DTI can still hurt your mortgage chances. That’s because it shows a lender you may already be stretched thin, and taking on a large new loan (like a mortgage) could increase the risk of default.

Lenders use DTI to:

• Evaluate your ability to repay

• Set your maximum loan amount

• Determine eligibility for different loan programs

• Adjust interest rate offers based on risk

In other words, your DTI can make or break your approval.

💡 What Debts Are Included in DTI?

Only monthly recurring debt payments are factored in—not everyday expenses.

Included in DTI:

• Mortgage payment (estimated or current)

• Car loans

• Student loans

• Credit card minimum payments

• Personal loans

• Child support/alimony (if required by court)

Not included:

• Groceries

• Utilities

• Subscriptions

• Gas, entertainment, daycare, etc.

That’s why you may “qualify” for more than you feel comfortable with—DTI doesn’t capture your full monthly lifestyle.

🔄 What Are Front-End vs Back-End DTI?

Lenders often break DTI into two components:

➤ Front-End DTI

= Housing expenses only

Includes: Principal, Interest, Property Taxes, Insurance (PITI)

Ideal front-end ratio: ≤28–31%

➤ Back-End DTI

= All debt obligations combined

Includes: Housing + car loans + credit cards + student loans, etc.

Ideal back-end ratio: ≤36–43%, though FHA may allow up to 50%.

🚫 What Happens If Your DTI Is Too High?

If your DTI is over the threshold for the loan program, you might:

• Get denied for the loan

• Be approved for a smaller loan amount

• Face higher interest rates

• Be required to show additional assets or reserves

• Need a co-borrower to qualify

But don’t worry, there are several ways to lower your DTI and improve your approval odds.

📉 How to Improve Your DTI Before Applying

Want to qualify for more home—and better rates?

Try these DTI-lowering strategies:

✅ Pay Down Credit Cards

Reducing balances lowers your minimum payments—and improves your credit score, too.

✅ Don’t Finance New Cars or Furniture

Avoid new debt before or during the home buying process.

✅ Refinance or Consolidate

Streamlining debt into a lower monthly payment can reduce your DTI.

✅ Increase Income

Raises, bonuses, side hustles, or even documented part-time work can help—just be sure it’s provable income.

✅ Add a Co-Borrower

If a spouse or family member has income and low debts, they can help bring your DTI down on paper.

📍 Texas-Specific Considerations

Texas has no state income tax, but high property taxes and homeowners insurance premiums—which are factored into your monthly mortgage estimate. This increases the “housing cost” portion of your DTI.

If you’re buying in:

• Fort Bend / Harris County – Factor in property tax rates of 2.3–2.8%

• Coastal areas like Galveston – Windstorm or flood insurance may increase costs

• HOA neighborhoods – Monthly dues are counted in your DTI

Make sure your lender is calculating these accurately from day one.

🎯 Final Thoughts: DTI Is More Than Just a Number

Think of your DTI like a financial thermostat: too high, and you overheat your budget and risk getting denied. But when it’s in the right zone, you unlock smooth approvals, better rates, and more buying power.

If you’re not sure where your DTI stands, or want help improving it, I'm here to walk you through it.

📲 Brandon Burgess | Mortgage Broker
NMLS #371950 | Serving all of Texas