Mortgage rates have cooled from their 2023 highs, and plenty of buyers are rushing back into the market.
But there's a number quietly doing more to kill loan applications than any rate ever will: your debt-to-income ratio.
Lenders use DTI to measure how much of your monthly gross income goes toward debt payments.
Add up your projected mortgage payment, minimum credit card payments, auto loans, student loans, and any personal loans, then divide by what you earn before taxes.
The math is brutal in a high-price market.
A $400,000 home with 20% down at today's rates can run close to $2,300 a month once you fold in taxes and insurance.
Add a $450 car payment and $200 in minimum card payments, and a household earning $7,500 a month lands around 39% DTI — right at the edge of what many conventional lenders will approve.
These days, conventional loans backed by Fannie Mae and Freddie Mac generally allow up to 45% with compensating factors like strong credit or cash reserves, and some programs stretch to 50%.
Cross that line and you're looking at a denial, a smaller loan than you wanted, or a push toward FHA financing with its own insurance costs.
What trips people up is the stuff they forget to count.
Child support, alimony, co-signed loans — even ones the other person pays — and minimum payments on cards you rarely use all show up on the application.
Lenders pull these figures from your credit report, not from your memory.
If your ratio is too high, you have a few levers.
Paying down revolving balances helps fast because minimum payments drop.
Paying off a small auto loan entirely can shave several points off your DTI overnight.
Some buyers bring in a co-borrower, though that adds their debts to the equation too.
And in some cases, a larger down payment lowers the loan amount enough to move the needle.
One move worth knowing: lenders can sometimes exclude debts that will be paid off soon, like a car loan with ten payments left, if you document it.
Self-employed buyers and anyone with variable income should expect extra scrutiny.
Lenders typically average two years of tax returns, and write-offs that lower your taxable income also lower the income they'll count.
That's a common surprise in April and May when last year's return is fresh.
Before you tour a single house, get pre-approved rather than pre-qualified.
Pre-approval involves actual document review and gives you a real DTI picture.
Walking into a bidding war only to learn three weeks later that you can't close is a heartbreak you can avoid for free.
Our take: DTI is boring, unglamorous, and the single most fixable obstacle between most buyers and a set of keys.
Spend an afternoon with a calculator and your credit report before you spend a weekend at open houses.
Final Thoughts
The rate gets the headlines, but the ratio gets the loan.