Debt-to-Income Ratio Explained: What Lenders Look at When You Buy in San Diego

by Trevor Landress

Your debt-to-income ratio, or DTI, is your total monthly debt payments divided by your gross monthly income, and it is one of the main numbers a lender checks before you buy a home. The Consumer Financial Protection Bureau says there is no single limit, because different loan products and lenders use different DTI limits.

The short answer

DTI equals all your monthly debt payments divided by your gross monthly income, which is your income before taxes.
The new mortgage payment counts as one of the debts.
At the time this article was written, Fannie Mae's guide listed a 50% maximum for loans run through its automated system, and 36% to 45% for manually underwritten loans.
Paying off a monthly debt can move your ratio more than you expect.

How DTI is calculated

The CFPB defines DTI as all your monthly debt payments divided by your gross monthly income. Gross means before taxes and other deductions come out. Its example is a $1,500 mortgage, a $100 auto loan and $400 in other debts, which adds up to $2,000. On $6,000 of gross monthly income, that is a DTI of 33 percent.

Lenders use it to judge whether you can handle the monthly payments on the money you plan to borrow. A lower number says you have more room in your budget.

What counts as a debt

Your new mortgage payment, including taxes and insurance in your estimate.
Car loans and leases.
Student loans (I cover how lenders count them in my guide to buying with student loan debt).
The minimum payments on credit cards.
Other monthly obligations that show on your credit report.

Groceries, utilities and phone bills are not part of the calculation, even though they are part of your real budget. That is one reason I tell buyers to plan around a comfortable payment, not only the highest approval. My guide on how much income you need to buy in San Diego shows how to build that budget.

A worked example

Here is a made-up buyer. They earn $12,000 a month before taxes. They have a $450 car payment, $200 in minimum credit card payments and a $300 student loan payment, which adds up to $950. The new home would cost $4,500 a month with principal, interest, taxes and insurance. This is for illustration only.

Scenario	Monthly debts	DTI
Housing payment only	$4,500	37.5%
Housing plus car, cards and student loan	$5,450	45.4%
Same, after paying off the $450 car payment	$5,000	41.7%
Same as the second row, plus a new $600 monthly debt	$6,050	50.4%

Paying off the car loan in the third row drops the ratio by about four points. That is why lenders often suggest paying off small balances before you apply, though you should ask your lender before moving any money.

What the limits are

At the time this article was written, Fannie Mae's Selling Guide listed a maximum total DTI of 36% of stable monthly income for manually underwritten loans, up to 45% when the borrower meets the credit score and reserve requirements in its eligibility matrix, and 50% for loans run through its automated underwriting system. Those numbers apply to loans Fannie Mae buys. Other loan types and lenders can set their own limits, and the CFPB says to expect differences.

You may have heard of a 43% rule. Please do not treat it as a federal cap. Lenders and loan programs use their own limits, so ask yours what it uses.

Ways to lower your DTI

Pay off a small loan or card with a monthly payment you can remove entirely.
Avoid opening new credit or financing a car before you buy.
Show a lender any added income that can be documented.
Shop for a lower home price or a larger down payment so the monthly payment is smaller. I explain how down payments change the math in my down payment guide.

What this guide cannot promise

A good ratio does not guarantee an approval, and a higher one does not always mean a denial. Lenders also look at credit, savings and the loan type. Your lender can run your numbers and tell you which limits apply.

My advice for San Diego buyers

Write down every monthly debt payment before you talk to a lender.
Estimate the full home payment, including taxes and insurance, not only principal and interest.
Ask your lender which DTI limit applies to the loan you want.
Do not open new credit while you are shopping for a home.
Choose a payment that fits your whole budget, not only the approval amount.

A note on advice

I am a REALTOR®, not a lender, attorney, tax professional or financial advisor, so this guide is general information. Your lender can tell you what you qualify for, and a CPA or attorney can answer tax and legal questions.

Call or text me at (619) 402-4614 or send me a message.

Call or text (619) 402-4614 Contact Trevor Landress

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Frequently asked questions

What is a debt-to-income ratio?

It is your total monthly debt payments divided by your gross monthly income. Lenders use it to judge whether you can manage the payments on a new loan.

What debts does a lender count?

Lenders count your new mortgage payment and the monthly payments on loans and credit cards that show on your credit report, such as car loans, student loans and minimum card payments.

Is 43% the DTI limit?

No. The CFPB says different loan products and lenders have different DTI limits, so ask your lender which one applies.

What DTI does Fannie Mae allow?

At the time this article was written, its Selling Guide listed 36% for manually underwritten loans, up to 45% with stronger credit and reserves, and 50% for loans run through its automated system.

How can I lower my DTI?

Pay off a monthly debt, avoid new credit, add documented income or buy with a lower payment. Ask your lender before you move any money.

About the author

Trevor Landress is a San Diego REALTOR® with Coldwell Banker West (DRE# 02126901). He was born and raised in San Diego and has been licensed since 2021.

Trevor helps homeowners sell, guides first-time buyers through the home buying process and assists investors with their next acquisition. His work includes negotiating offers, analyzing market trends, building pricing strategies and running marketing campaigns for his listings.

He serves clients across San Diego County, from coastal communities like La Jolla, Del Mar and Carlsbad to neighborhoods inland.

Trevor is part of the Campbell Group, a three-generation real estate team, and he and the Campbell Group consistently rank as a top producing team at Coldwell Banker West each month. He writes these guides to help San Diego buyers and sellers navigate an ever-changing market. To talk through your plans, call or text (619) 402-4614 or contact Trevor Landress.

How I help San Diego home buyers

I help buyers sort out their budget, understand their loan options with a lender, search for homes, write and negotiate offers, keep track of inspection and contingency deadlines and stay organized through closing.

How I help San Diego home sellers

I help sellers price their home, prepare it for the market, market it to buyers, review and negotiate offers and manage the steps from an accepted offer to closing.