DTI ratio calculator

Written by Vincent Roy · Last reviewed May 22, 2026 · Sourced from IRS Rev. Proc. 2025-32. Estimates only — not personalized tax advice. See disclaimer.

DTI ratios, plain English.

Lenders use two DTI ratios when evaluating a mortgage or large loan:

1. Front-end DTI = housing payment ÷ gross monthly income. Captures whether the house itself is affordable.
2. Back-end DTI = (housing + all other debt) ÷ gross monthly income. Captures whether your full debt load is sustainable.

Most calculators show one number. This one shows both, because mortgage lenders evaluate both — and the "back-end" number is what disqualifies most rejections.

Lender tier thresholds (2026)

Front-end DTI

• Under 28% — ideal. Conventional + government loans all available.
• 28–31% — borderline. Some conventional lenders push back; FHA / VA accepts.
• Over 31% — risky. Compensating factors (reserves, high credit score) needed.

Back-end DTI

• Under 36% — ideal. Best rates, all loan programs available.
• 36–43% — acceptable for QM (Qualified Mortgage) rule. Most conventional + FHA.
• 43–50% — non-QM territory. Higher rates, fewer lenders. Bank-statement loans an option for 1099.
• Over 50% — usually denied. Reduce debt or increase income before applying.

How lenders treat self-employed income.

• Two years of tax returns required — lenders calculate "qualifying income" by averaging 24 months of net Schedule C income, then dividing by 12. Trending matters: if year 2 < year 1, they typically use the lower of the two.
• Depreciation gets added back — Schedule C line 13 depreciation reduces taxable income but doesn't reduce cashflow. Lenders add it back when computing qualifying income. Other add-backs: home office, vehicle deduction, business-use-of-personal items.
• Aggressive deductions hurt mortgage approval — the math freelancers do at tax time (maximize deductions, minimize taxable income) is the opposite of what helps a mortgage. Plan 18+ months ahead if you know you'll apply.
• Bank-statement loans use bank deposits instead of tax returns — non-QM lenders use 12–24 months of business bank deposits ÷ assumed expense ratio (50–70%). DTI calculation uses the resulting "qualifying income". Rates run 0.5–1.5% higher than conventional.
• Outstanding tax liability counts as debt — if you owe the IRS and have a payment plan, the monthly payment is included in back-end DTI.
• Self-employment tax is NOT in DTI — only gross income and debt payments matter for DTI. (SE tax affects your federal return, not the lender's math.)

The single biggest DTI optimization for 1099 borrowers: increase qualifying income by NOT maxing your Solo 401(k) for the 2 years before applying. The retirement contribution lowers AGI and therefore qualifying income. It's a real trade-off.

More freelancer math.