What is the debt‑to‑income (DTI) ratio?
The DTI ratio compares your total monthly debt payments (including mortgage, credit cards, auto loans, student loans, etc.) to your gross monthly income. Lenders use it to gauge whether you have enough cash flow to handle a new mortgage payment.
Conventional loan DTI limits
For most conventional loans backed by Fannie Mae or Freddie Mac, the baseline maximum overall DTI is 45%. This means your total monthly debts should not exceed 45% of your gross income.
However, lenders may approve higher DTI ratios—often up to 50% or even a bit higher—if you have strong compensating factors such as:
- Excellent credit score (typically 720 or above)
- Significant cash reserves after closing
- Low loan‑to‑value (LTV) ratio or a large down payment
- Stable, high‑earning employment history
Texas‑specific considerations
Texas is a community‑property state, meaning most debts incurred during marriage are considered joint. When calculating DTI, lenders often include both spouses' incomes and debts, which can raise the debt side of the equation.
Additionally, Texas has no state income tax, so borrowers’ gross income is not reduced by state tax withholdings, slightly improving the DTI calculation compared with states that levy income tax.
Most Texas home purchases close through title companies rather than attorneys, but the DTI assessment process remains the same regardless of the closing agent.
This article provides general information and is not personalized financial advice.