What Is a Good Debt-to-Income Ratio?

Take two minutes and work this out before you read any further. Add up every debt payment you make in a month: the mortgage or rent, car finance, student loans, the minimum on each credit card, any personal loan or buy-now-pay-later instalment. Then divide that total by your gross monthly income, meaning your pay before tax and deductions. Multiply by 100.

That percentage is your debt-to-income ratio, and it is the single number lenders look at hardest after your credit score. The CFPB defines it exactly that way: all your monthly debt payments divided by your gross monthly income. Someone paying 2,000 a month against 6,000 of gross monthly income sits at 33 percent.

Now the awkward part. The threshold almost every article quotes for that number has not been the rule for years.

The 43 percent figure is a leftover

For a long time, 43 percent was the wall. It was written into the General Qualified Mortgage definition in the US, and a loan above it fell outside the safe harbour lenders wanted, so in practice it functioned as a cap.

That changed. The CFPB's General QM final rule removed the 43 percent DTI limit from the General QM loan definition and replaced it with price-based thresholds, measured by how far a loan's APR sits above the average prime offer rate for a comparable transaction. The regulatory test is now about pricing rather than about a single ratio.

What did not change is habit. Plenty of lenders kept 43 percent as an internal guideline, and plenty of underwriting systems still flag it. So it remains a useful number to stay under, but treat it as market convention rather than law, and never assume that clearing it guarantees approval or that missing it guarantees refusal.

There are two ratios, and you probably only know one

Lenders assessing a mortgage look at your total ratio and at a housing-only ratio separately.

Front-end, or housing ratio. Your housing costs alone divided by gross monthly income. In the US that generally means principal, interest, property taxes and insurance.

Back-end, or total ratio. Housing plus every other debt payment, divided by the same income.

The long-standing conventional guideline is 28 and 36: housing no more than 28 percent of gross income, total debt no more than 36 percent. It is an industry rule of thumb rather than a regulation, and lenders routinely go above it, but it is a good private benchmark because it is the level at which a budget still has slack in it.

The gap between your two ratios is diagnostic. A household at 27 percent front-end and 42 percent back-end does not have a housing problem, it has a consumer debt problem, and those are fixed in completely different ways.

What goes in, and what does not

The numerator trips people up more than the maths does.

Include: mortgage or rent, property taxes and home insurance where they are escrowed or where you are being assessed for a mortgage, car loans and leases, student loan payments, personal loans, credit card minimum payments, lines of credit, buy-now-pay-later instalments, court-ordered payments such as child support or alimony.

Exclude: utilities, phone and broadband, groceries, insurance premiums that are not part of a housing payment, subscriptions, childcare, and anything you pay by choice rather than by contract. Also exclude the full balance of a card. Only the minimum payment goes in, which is why a 9,000 dollar balance can weigh less on this ratio than a 9,000 dollar car loan does.

For income, use gross rather than net. It feels wrong, because you never see that money, but the ratio is standardised on pre-tax income so that it compares across borrowers.

Three countries, three different tests

This is where most guides stop at the US answer. The other two do not run on a single DTI number at all.

	United States	United Kingdom	Canada
Main test	Debt-to-income, front-end and back-end	Loan-to-income plus lender affordability assessment	Gross and total debt service ratios
Headline limits	28/36 as convention; 43 percent widely used but no longer the General QM rule	Lending at 4.5 times income or above capped at 15 percent of a lender's new mortgages	GDS 39 percent, TDS 44 percent for insured mortgages
Stress test	Lender-specific	FPC affordability test recommendation withdrawn in 2022; lender assessments remain	Qualifying rate is the greater of the contract rate plus 2 percent or 5.25 percent
What is counted	Contractual debt payments	Income multiple of the loan, plus assessed expenditure	Principal, interest, taxes, heat, 50 percent of condo fees, plus other debt for TDS

United States. Two ratios, the conventions above, and wide variation between loan programmes. The regulatory cap moved to pricing, but the ratios still drive underwriting.

United Kingdom. The binding constraint is the size of the loan relative to income, not your monthly payments. Following the FPC's recommendation, lenders must limit mortgages at 4.5 times income or more to no more than 15 percent of their new lending each year, which is a limit on the lender's book rather than a hard cap on you personally. Separately, the FPC confirmed the withdrawal of its mortgage market affordability test recommendation in 2022, so the specific stress rate it prescribed no longer applies, though lenders still run their own affordability assessments.

Canada. The most explicit of the three. Gross debt service covers principal, interest, property taxes and heat, plus 50 percent of condominium fees, and must not exceed 39 percent of gross income for an insured mortgage. Total debt service adds all other debt obligations and is capped at 44 percent. Credit cards and unsecured lines are counted at a monthly payment of no less than 3 percent of the outstanding balance, so a large balance hurts here even when your actual minimum is small. On top of that sits the stress test: the qualifying rate is the greater of the contract rate plus 2 percent or 5.25 percent, so you must show you could afford payments at a rate you are not being charged.

One household, run through all three

Take a couple with 6,500 a month in gross household income, or 78,000 a year. Their commitments: mortgage principal and interest 1,450, property taxes 300, home insurance 95, heating 120, car loan 410, student loans 190, and a 6,000 credit card balance with a 150 minimum.

US calculation. Housing is 1,450 plus 300 plus 95, so 1,845. Front-end ratio: 1,845 divided by 6,500, or 28.4 percent. Add the car, student loans and card minimum and the total is 2,595, giving a back-end ratio of 39.9 percent.

Canadian calculation. GDS is principal, interest, taxes and heat: 1,450 plus 300 plus 120, so 1,870, which is 28.8 percent. TDS adds the car at 410, student loans at 190, and the card at 3 percent of 6,000 rather than the 150 minimum, so 180. Total 2,650, or 40.8 percent.

UK calculation. If the mortgage borrowing behind that payment is 260,000, the loan-to-income multiple is 3.3, comfortably below the 4.5 threshold that constrains lender volumes.

The same household, three frameworks, three answers between 28 and 41 percent. They clear Canada's 39 and 44 percent limits, sit just inside the US 43 percent convention, and are nowhere near the UK's income multiple ceiling. They also fail the 36 percent rule of thumb, which is the honest signal: approvable, but with less slack than is comfortable.

Moving the number, fastest first

Two levers, and one of them is badly misunderstood.

Cut the biggest payment, not the biggest balance. In that household, clearing the 410 car loan removes 6.3 points from the ratio. Clearing the 6,000 card removes only the 150 minimum, or 2.3 points, despite being a much larger balance. If you have a mortgage application in the next few months, the car is the target. If you do not, the card is almost certainly the better financial decision because of the interest rate, which is the trade-off we set out in good debt vs bad debt. Know which problem you are solving before you choose.

Do not restructure debt purely to flatter the ratio. Stretching a loan over a longer term drops the monthly payment and improves your DTI while increasing what you pay overall, and in Canada it will not help as much as expected because unsecured balances are assessed at 3 percent regardless. If you are considering that route, run the total-cost test in should you consolidate your debt first.

Raise the denominator where you can. Documented, stable income counts. Overtime, bonuses and self-employed income usually need a two-year history before a lender will use them, so a raise this month may not appear in an assessment for a while. Plan the timing rather than assuming it lands immediately.

Finally, do not open new credit in the three to six months before a mortgage application. A new car payment can move your ratio several points overnight, and it is the most common reason a pre-approval falls apart between offer and completion.

The bottom line

Calculate both ratios, not one, and use gross income for the denominator. Under 36 percent total is genuinely comfortable, the low 40s is workable but tight, and above that your choices shrink. Then check the test that actually applies where you live: two ratios in the US, an income multiple in the UK, and the 39 and 44 percent debt service limits with a stress-tested rate in Canada. The number that matters is the one your lender calculates, and it is rarely the one the internet quotes.