What Is Debt-to-Income (DTI) Ratio? Refinancing Requirements

When you apply to refinance your mortgage, lenders evaluate several key metrics: credit score, home equity, loan-to-value ratio, and one of the most important yet misunderstood: your Debt-to-Income (DTI) ratio.

Your DTI tells lenders how much of your income is already committed to debt. The lower your DTI, the easier it is to qualify for a refinance, and the better your pricing may be. The higher your DTI, the more cautious lenders become — even if your credit score is strong.

The problem? Most homeowners don’t know what counts toward DTI, how it’s calculated, or what DTI lenders prefer.

This guide explains what DTI is, how lenders calculate it, which debts count toward it, and the ratio you need to refinance.

Key Takeaways

• Debt-to-Income (DTI) measures how much of your monthly income goes toward debt payments

• DTI = Total Monthly Debt ÷ Gross Monthly Income × 100

• Many refinance programs require a DTI of 43% or less

• Competitive pricing typically goes to borrowers with a DTI under 36%

• A high DTI can increase your interest rate, add underwriting conditions, or prevent approval entirely

💡Pro tip: Even a 0.25% higher interest rate or a few hundred dollars in higher closing costs can affect your DTI, making it harder to qualify for a refinance.

What Is Debt-to-Income (DTI) Ratio?

Your DTI ratio shows lenders how much of your income is tied up in debt obligations. It helps them determine whether you can comfortably afford your new mortgage payment.

DTI Formula

DTI = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100

Example

• Monthly income: $8,000

• Total monthly debts: $2,800

DTI = 2,800 ÷ 8,000 = 35%

This borrower is in excellent shape for refinancing.

Types of DTI Lenders Use

Lenders consider two versions of the debt-to-income ratio to give them a 360-degree view of your ability to repay the loan.

Front-End DTI

Your new housing payment is divided by your income. The housing payment includes:

• Principal & interest

• Property taxes

• Homeowners insurance

• PMI

• HOA dues (if applicable)

Back-End DTI (The One That Matters Most)

Your total monthly debt — including housing — divided by income.

Back-end (or total) DTI includes:

• Mortgage payment

• Auto loans

• Student loans

• Credit card minimums

• Personal loans

• Installment loans

• Alimony/child support

• Co-signed loans

Back-end DTI is a key metric lenders use to approve refinances, along with factors such as your credit score, income type, employment history, and loan-to-value ratio.

What DTI Do You Need to Refinance in 2026?

Different loan programs have different requirements, and actual requirements, both preferred, and max DTI can vary by lender. Below are the typical requirements of traditional loan programs.

Conventional Refinance

• Preferred DTI: ≤ 43%

• Max allowed: up to 50% with strong credit and solid reserves

FHA Refinance

• Preferred: ≤ 43%

• Max: 50% with compensating factors

FHA loans tend to be more flexible for borrowers with higher debt loads.

VA Refinance (IRRRL & Cash-Out)

• No official DTI limit from the VA

• Most lenders prefer ≤ 41%

• Higher DTIs allowed with high residual income

• Residual income is the money left over after deducting your monthly expenses.

Jumbo Refinance

• Typical max: ≤ 43%, often lower

• Stricter for multi-unit or investment properties

Cash-Out Refinance

Even tighter restrictions:

• Many lenders require ≤ 45%

• Some limit to ≤ 40% for riskier scenarios

Cash-out increases risk, so lenders adjust accordingly.

💡Pro tip: Because DTI pricing adjustments vary by lender, two identical borrowers can receive meaningfully different offers.

What Counts (and Doesn’t Count) Toward DTI

Understanding which debts matter is crucial. Lenders look only at monthly debt obligations, not spending habits.

Debts That Count Toward DTI

• Mortgage payment (PITI + HOA)

• Auto loans or leases

• Student loans (even in deferment)

• Credit card minimum payments

• Personal loans/installment loans

• Alimony or child support

• Co-signed loans

Debts That Do Not Count

• Utilities

• Cell phone bills

• Groceries

• Gas & transportation

• Health insurance premiums

• Cable/streaming services

• Childcare costs

• Retirement or investment contributions

Even large expenses don’t affect DTI unless they’re classified as debt.

How a High DTI Affects Your Refinance

Your DTI directly influences the following, but how much it affects it varies by lender:

1. Rate Eligibility

Higher DTI = higher perceived risk = higher pricing adjustments. For example, one lender may add 0.25 points at a 42% DTI, while another doesn’t penalize until 45% DTI.

2. PMI Requirements

High DTI may trigger PMI even with a lower LTV in certain cases.

3. Underwriting Scrutiny

Underwriters may require:

• Additional asset documentation

• Proof of reserves

• Pay off certain debts before closing

4. Maximum Loan Amount

High DTI may reduce the loan amount you’re approved for.

5. Approval Itself

Every lender has a DTI threshold they will accept, along with other factors; however, a high DTI can make approval more challenging.

How to Calculate Your Own DTI (Step-by-Step)

Knowing your DTI before you apply can help you determine which loan programs you may qualify for.

Step 1: Add up your monthly debt payments

Include:

• New expected mortgage payment

• All minimum monthly loan payments

• Minimum credit card payments

Step 2: Find your gross monthly income

Use:

• Pre-tax income

• Base salary

• Bonus/commission (if consistent)

• Alimony (if court-ordered and documented)

Step 3: Apply the formula

DTI = Total Monthly Debt ÷ Gross Monthly Income

Example:

• Gross income: $7,500

• Total monthly debt: $3,000

DTI = 40%

How to Lower Your DTI Before Refinancing

If your DTI is too high, here are strategies lenders love:

1. Pay Off High-Payment Debts

For example:

Eliminating a $450 auto payment reduces DTI much faster than paying off $10k of credit card debt with a $200 minimum payment.

💡Pro tip: DTI prioritizes monthly obligations, not balances.

2. Increase Your Income

Options include:

• A raise

• Second job

• Documented side income

• Adding a co-borrower

Income must be stable and documented. Keep in mind that many lenders will not count additional income, such as a side job, until you receive it consistently for two years.

3. Refinance at a Lower Payment

Lowering your mortgage payment through a refinance (or extending the loan term) may improve your DTI.

4. Avoid New Debt Before Applying

Do not:

• Finance a new car

• Open new credit cards

• Take personal loans

• Co-sign anything

5. Pay Down Credit Cards Strategically

Lenders use the minimum payment, but lowering your balance reduces that minimum. Arrange your credit cards by balance (largest to smallest) and pay down the ones with the highest balances to lower your minimum payment and, in turn, your DTI.

💡 Pro Tip: Once you optimize your DTI and receive a Loan Estimate, upload it to Fincast to see whether your improved DTI is translating into competitive pricing. Many lenders don’t offer their best rates to lower-DTI borrowers unless they're competing for your business.

Why DTI Makes Comparing Lender Offers Tricky

Each lender treats DTI differently:

• Some penalize high DTI more than others

• Some offer better pricing for low DTI

• Some require lower DTI for cash-out

• Some count student loans differently

This makes comparing refinance offers on your own extremely difficult.

That’s exactly what the Fincast platform solves — exposing DTI-based pricing differences lenders don’t advertise.

How Fincast Helps You Leverage a Strong DTI for Better Pricing

If you’ve worked to lower your DTI, you deserve better refinance pricing. Fincast helps you see what’s available.

Here’s how it works:

1. Upload your Loan Estimate

You don’t need to complete a new application or have your credit pulled. Lenders use your existing Loan Estimate from your first application to make offers.

2. Fincast benchmarks your deal

It analyzes:

• Lender fees

• Rate

• Points

• Closing costs

• DTI-based pricing adjustments

3. Vetted lenders anonymously compete to beat your offer

Lenders do not see your personal information; they only see the data required to provide offers, if available. This eliminates unnecessary spam or sales calls, allowing you to focus on the data.

4. You choose the best offer

If your lender has the best rate, Fincast confirms it. If not, you’ll see what other offers may be available.

FAQs: DTI & Refinancing

1. What’s the maximum DTI allowed for refinancing?

Most lenders cap DTI at 43–45%, though some programs allow up to 50%. The actual requirements vary by lender.

2. Do deferred student loans count toward DTI?

Yes — lenders still add a calculated payment. If you have deferred student loans, ask lenders how they will calculate them.

3. Can I refinance with high DTI?

Possibly, but pricing may be higher and underwriting stricter. This is why it’s important to shop around to ensure you have the best deal.

4. Does DTI affect my interest rate?

It can. Higher DTI often results in larger pricing adjustments.

5. How do I know if my DTI-based pricing is competitive?

Upload your Loan Estimate to Fincast for transparent benchmarking to compare your offer with those from vetted lenders.

Bottom Line

Your Debt-to-Income ratio plays a major role in refinance eligibility, pricing, and approval. Understanding how DTI is calculated — and how lenders interpret it — helps you prepare strategically and avoid surprises.

Even with a strong DTI, lenders price your refinance differently. The only way to ensure you're getting the best deal is to compare offers based on your real financial profile.

Action Checklist

☑️ Calculate your DTI

☑️ Identify debts you can reduce

☑️ Avoid taking on new loans

☑️ Request your Loan Estimate

☑️ Upload your LE to Fincast

☑️ Compare lenders anonymously

☑️ Lock in the offer that maximizes your savings

👉 Have you done the work to lower your DTI?

Don’t let lender-based pricing erase the benefit. Upload your Loan Estimate to Fincast and let vetted lenders compete — anonymously — so you secure competitive rates and fees.

• This content is for educational purposes only. DTI requirements and pricing adjustments vary by lender and borrower profile.