DTI: the 43% tipping point
Every US mortgage lender runs two ratios on your file. Front-end DTI is monthly PITI (principal + interest + taxes + insurance, plus HOA and mortgage insurance) divided by gross monthly income. Back-end DTI adds car loans, student loans, credit-card minimums, child support and any other recurring debt. The CFPB's Qualified Mortgage rule under Dodd-Frank caps back-end at 43% for the easiest path to approval.
Why 43% matters: loans at or below 43% qualify for safe-harbor legal protection and sell readily into the secondary market. Above 43%, the loan is non-QM, typically prices 25-50 bps higher, and demands extra documentation. FHA can stretch to 50% with compensating factors. Conventional automated underwriting can approve 45-50% at 740+ credit with 6 months of reserves. VA uses residual income (dollars left after PITI and debts) instead of a percentage, so high-DTI VA loans are routine if the residual is comfortable.
What counts toward DTI surprises borrowers. Student loans on income-driven repayment count at the actual IDR payment for Conventional, but at 0.5% of the balance for FHA. Co-signed loans count even when the primary borrower pays. Cash advances and 401(k) loans count. Alimony and child support count for the spouse paying.
Conforming vs jumbo: the $815,000 cliff
The 2026 baseline conforming loan limit is $815,000 for a one-unit single-family primary residence, up from $806,500 in 2025. FHFA sets this each November based on the Housing Price Index growth in the prior 12 months. In high-cost counties (San Francisco, NYC, parts of Hawaii, DC suburbs) the ceiling is 150% of baseline, currently $1,222,500. Multi-unit limits are higher: 2-unit $1,043,500, 3-unit $1,261,650, 4-unit $1,568,150.
Loans at or below the conforming limit follow Fannie Mae and Freddie Mac standardized underwriting. They sell to agencies, keeping rates competitive. Loans above the limit are jumbo, follow private investor guidelines, and typically:
- Price 10-25 basis points higher than conforming rates
- Require 700+ credit (often 740+ for best pricing)
- Demand 10-20% down (vs 3-5% on conforming)
- Require 6-12 months of PITI in reserves (vs 2-6 months)
- Take longer to underwrite (manual review, asset verification)
The practical implication: if your target home is $830,000 and you have $50,000 down, you are forced into a $780,000 jumbo loan with stricter terms. If you can add another $15,000 in down payment to make it $65,000 down on $830,000 = $765,000 loan, you remain conforming. The savings over 30 years often exceed $30,000.
One important exception: portfolio jumbo programs at private banks sometimes price BELOW conforming for high-net-worth borrowers with banking relationships. Chase, Bank of America Private Bank, US Bank, and First Republic all offer relationship-priced jumbo. If you have $1M+ in deposits or investments with the bank, ask.
| Loan type | Min down | Min credit | Max back DTI | Max LTV | Mortgage insurance | Max 2026 loan |
|---|---|---|---|---|---|---|
| Conventional | 3-5% | 620 | 43% (50% with reserves) | 95% | PMI 0.3-1.5%, cancels at 80% LTV | $815,000 baseline |
| FHA | 3.5% | 580 | 43% (50% with compensators) | 96.5% | MIP 1.75% upfront + 0.55-0.85% annual, life of loan if down under 10% | $524,225 low-cost / $1,222,500 high-cost |
| VA | 0% | 620 (lender overlay) | 41% target, residual matters more | 100% | None. Funding fee 2.15-3.3% rolled in | No cap with full entitlement |
| Jumbo | 10-20% | 700+ | 38-43% with reserves | 80-90% | None at 80% LTV | Above $815,000 |
Credit score impact on the max
Two things move with credit. The rate you can get (loan-level price adjustments, LLPAs, set by Fannie Mae and Freddie Mac) and the allowable DTI ceiling. Combined effect is non-linear and compounds.
Moving from 660 to 760 typically:
- Drops your Conventional rate 50-100 bps (FHA and VA are less rate-sensitive to score)
- Lifts your effective DTI cap by 5 percentage points
- Cuts PMI cost roughly in half if LTV is above 80%
- Translates to 15-25% more house price for the same income and down payment
The fastest credit repairs come from three actions, in order:
- Pay every revolving balance below 30% utilization, and ideally below 10%, before the statement date (not just the due date). Utilization is the single biggest score lever after on-time history.
- Do not open or close any credit accounts in the 6 months before applying. Average age of accounts matters, as do hard inquiries.
- Dispute any errors on all three bureau reports. Old collections, paid charge-offs reported as open, and identity mix-ups are common. A 50-point gain in 60-90 days is realistic.
For high-income borrowers carrying revolving balances for points, the calculus is uncomfortable: paying down those balances 60 days before applying can move max house price by $50,000-$100,000 even though "you can afford the payment." Lenders care about ratios, not absolute capacity.
PMI, MIP and the down payment math
The mortgage insurance you pay depends on your loan type, not just your down payment. The math costs real money over 30 years.
PMI on Conventional loans applies when LTV exceeds 80% (down payment under 20%). Rate ranges from 0.3% to 1.5% of the loan annually, blended by credit score and LTV. At 95% LTV with 740 credit, expect roughly 0.55%. PMI cancels automatically at 78% LTV per the Homeowners Protection Act. You can request cancellation at 80% LTV with an appraisal showing the value. PMI is tax-deductible only when itemizing and only below certain income limits (the deduction expired and was reinstated several times; check current rules at filing time).
MIP on FHA loans applies regardless of down payment. The upfront MIP is 1.75% of the loan, rolled into the financed amount. The annual MIP is 0.55% to 0.85% spread monthly. Critically, on FHA loans originated after June 2013 with under 10% down, MIP lasts the entire life of the loan. The only way to remove FHA MIP is to refinance into a Conventional loan, which requires 20% equity and credit qualification.
VA charges no monthly mortgage insurance. Instead there is a one-time funding fee, 2.15% for first VA use at 0% down, 3.3% for subsequent VA use, rolled into the loan. Disabled vets with 10%+ VA disability rating are exempt from the funding fee. Surviving spouses are also exempt. Over 30 years, the absence of MI saves a typical VA borrower $30,000-$60,000 compared to FHA.
Jumbo loans avoid mortgage insurance entirely at 80% LTV or below. Some jumbo programs allow piggyback structures: an 80% first mortgage plus a 10% second (HELOC or fixed) plus 10% down, avoiding MI without the full 20% down. Watch the second mortgage rate, which is usually variable and 100-200 bps higher than the first.
Five mistakes that shrink your pre-qualification
- Carrying high revolving utilization at application. Even a single card at 90% utilization can drop your score 40 points. Pay all cards below 30% (ideally 10%) before statement close date in the 60 days before applying.
- Forgetting your student loan IDR payment. If you are on SAVE, PAYE or REPAYE, your minimum payment is often $0-$200 and that is what Conventional uses. FHA uses 0.5% of the balance regardless. On $80,000 in student debt that is $400 vs $0 against your DTI. Pull the difference together.
- Making large cash deposits in the 60 days before closing. Any unsourced deposit must be sourced and seasoned. Tax refunds and gifts must have a paper trail. Cash businesses and side income need 2 years of deposit history. Stop depositing cash 2 months before applying.
- Switching jobs mid-application without thinking. Same-industry salaried moves are usually fine, with a written offer letter. New commission, bonus or self-employed income requires 2 years of history. A move from W-2 to 1099 in the wrong week can torpedo the file.
- Treating pre-qualification as pre-approval. Pre-qualification is a conversation. Pre-approval is a hard pull with documents and lender commitment. In hot markets sellers will not show homes without pre-approval. Always upgrade to pre-approval before scheduling the first showing.
Run the math for your situation
Use our 🇺🇸 US Mortgage Pre-qualification Calculator to plug in your income, debts, credit score, down payment and loan type. Returns max house price plus full PITI breakdown with PMI, closing costs and reserves.