Calculate your front-end and back-end DTI. See if you qualify for a conventional or FHA mortgage and how much room you have for new debt.
Debt-to-income ratio, or DTI, compares required monthly debt payments to gross monthly income. Lenders use it to estimate whether a new payment fits alongside your existing obligations.
Front-end DTI equals housing payment divided by gross monthly income. Back-end DTI equals all required monthly debt payments divided by gross monthly income.
The calculator separates these ratios because mortgage lenders often review both: the housing burden and the total debt burden.
If gross monthly income is $8,000 and housing costs are $1,800, front-end DTI is 22.5%. If car, student loan, credit card, and other payments bring total monthly debt to $2,700, back-end DTI is 33.8%.
Those numbers help estimate whether there is room for another payment before a lender says the file is too tight.
Use required monthly payments, not total balances. Include mortgage or rent, car payments, student loans, minimum credit card payments, personal loans, alimony, and other recurring debts that appear in underwriting.
Utilities, groceries, and discretionary spending matter to your budget, but they are not usually part of formal DTI.
The fastest improvement often comes from eliminating a monthly payment rather than only reducing a balance. Paying off a small loan with a required payment can move DTI more than paying down a large balance that keeps the same payment.
Increasing documented income also helps, but lenders will usually require proof and history.
Before moving cash, ask how the lender will count installment debts that are nearly paid off. Some programs may exclude a payment with only a few months remaining.
That detail can change which payoff creates the strongest application.
Many conventional mortgage screens prefer back-end DTI around 36% or lower, though some approvals can go higher depending on credit, reserves, down payment, and loan type.
The minimum monthly payment counts in DTI. The full balance affects utilization, which is a separate credit ratio.
Paying off a debt can help if it removes or lowers a required monthly payment. Ask the lender how they will treat the payoff before moving cash.
For a mortgage application, the proposed housing payment usually replaces rent in the qualifying calculation. For other loans, current rent may still matter to affordability.