How to Calculate Your Debt-to-Income Ratio for a Mortgage

If you’re planning to buy a home in Maine or New Hampshire, understanding your Debt-to-Income Ratio (DTI) is one of the most important steps in preparing for a successful mortgage application. Whether you’re buying your first home in Portland, upgrading your space in Bangor, or relocating to the Seacoast area of New Hampshire, lenders will closely examine your DTI ratio to determine your borrowing power and financial health.

In this article, we'll break down what your Debt-to-Income Ratio is, why it matters, how to calculate it accurately, and how to improve it for better mortgage approval odds.

What Is a Debt-to-Income Ratio?

Your Debt-to-Income Ratio (DTI) is a percentage that reflects how much of your gross monthly income goes toward debt payments. It’s a key indicator lenders use to evaluate how comfortably you can manage a monthly mortgage payment in addition to your current financial obligations.

DTI Formula:
Total Monthly Debt Payments ÷ Gross Monthly Income = DTI Ratio

For example, if you earn $6,000 per month before taxes and pay $2,100 toward existing debts, your DTI ratio is 35%.

Why Is DTI Important for Homebuyers in Maine and New Hampshire?

Lenders across the country rely on DTI as part of the mortgage underwriting process, but in Northern New England, where average home prices and incomes can vary significantly by region, DTI becomes even more important. Here’s why:

• In Maine, the median home price as of 2024 was around $390,000, but coastal areas like Portland or Camden can be significantly higher. [Maine Public]

• In New Hampshire, the statewide median hovered around $514,000, with towns near the Seacoast running well above average. [NH Business Review]

• Given the rising interest rates and home prices, managing your DTI is critical to maximizing affordability and qualifying for the best loan programs.

Most lenders prefer a DTI ratio below 43%, though some government-backed programs (like FHA or VA loans) may allow up to 50% depending on other financial factors.

How to Calculate Your DTI Ratio in 3 Easy Steps

Step 1: Add Up Your Monthly Debt Payments

These should include any fixed monthly obligations, such as:

• Auto loans

• Credit card minimum payments

• Student loans

• Personal loans

• Child support or alimony

• Estimated mortgage payment (including taxes and insurance)

🔍 Tip for Mainers & Granite Staters: Don't forget to include local property tax estimates in your projected mortgage payment.

Example:

Total Debt: $2,600/month

Step 2: Determine Your Gross Monthly Income

Include all income sources:

• Salary or hourly wages (before taxes)

• Bonuses or commissions

• Freelance/side gig income

• Rental income

• Alimony/child support (if applicable and consistent)

Example: $6,000/month total income

Step 3: Divide Monthly Debts by Income

$2,600 ÷ $6,000 = 0.433 or 43.3% DTI

In this scenario, your DTI is just over the commonly preferred threshold. While some lenders might still approve you (especially for FHA loans), it could limit your loan amount or affect your interest rate.

What Is a Good Debt-to-Income Ratio for a Mortgage?

Here's how most lenders categorize DTI ranges:

💬 Local Insight: In high-demand areas like Portland, ME or Dover, NH, where housing costs are above average, many buyers turn to FHA, VA, or USDA loans to qualify even with a higher DTI - especially if their credit score and down payment are strong.

Tips to Improve Your DTI Before Applying for a Mortgage

If your DTI is too high, don't worry - there are several strategies to lower it:

1. Pay Down Credit Cards and Loans

Focus on high-interest debts first. Even paying off one account can significantly reduce your DTI.

2. Avoid Taking on New Debt

Hold off on buying a new car or financing large purchases until after your mortgage closes.

3. Increase Your Income

Take on extra hours, freelance work, or consider renting out a room (common in seasonal areas like Bar Harbor or North Conway).

4. Refinance or Consolidate

Debt consolidation loans with lower monthly payments may help lower your obligations.

5. Work with a Local Mortgage Expert

A local mortgage advisor, like the experienced team at Acadia Lending Group, can recommend loan options that allow for slightly higher DTIs or help guide you through steps to strengthen your chances of approval.

Final Thoughts: Know Your DTI Before You Apply

Your Debt-to-Income Ratio is one of the most critical factors in the home loan approval process - especially in competitive markets like Southern Maine or the New Hampshire Seacoast. By calculating your DTI in advance and taking steps to improve it, you're not only improving your chances of getting approved - you're setting yourself up for a smoother, more affordable homeownership journey.

Have questions about your own DTI or how it affects your ability to buy a home in Maine or New Hampshire?

Speak with a local, experienced mortgage advisor from Acadia Lending Group who knows the unique market conditions of your area. Whether you’re eyeing a home in Windham, Portsmouth, or the Lakes Region, getting personalized guidance can make all the difference.

Start today by calculating your DTI - and let's get you closer to your dream home! Give us a call at (207) 899-4500.