My 43% DTI Got Approved for $385,000 Purchase - But 46% Was Denied, Here's Why

I applied for a conventional purchase mortgage in September 2024 with $92,000 annual income, 708 credit score, and 10% down payment on a $385,000 home. My debt-to-income ratio was 46.2%. I was confident I would be approved—my income was strong, my credit was above the 700 threshold, and I had substantial down payment saved.

The underwriter denied my application citing “debt-to-income ratio exceeds maximum allowable threshold for program guidelines without sufficient compensating factors.”

I was shocked. I had read that conventional loans allow “up to 50% DTI,” so why was my 46% being rejected?

Three weeks later, after paying off two debts strategically, I reapplied with 43.1% DTI—and was approved within 6 days with no other changes to my application. Here’s what I learned about the real DTI limits and how to navigate them if you’re close to the edge.

My Original DTI Calculation (46.2% - Denied)

My monthly income:

• Base salary: $92,000 / 12 = $7,667/month gross
• No bonuses or commissions counted (lender requires 2-year history)

My monthly debts before mortgage:

• Car payment: $545 (Toyota 4Runner, 48 months remaining)
• Student loans: $380 (federal loans, standard 10-year plan)
• Credit cards: $125 minimum payments (carried $4,200 balance across 3 cards)

Total existing debts: $1,050/month

My proposed mortgage payment:

• $385,000 purchase - $38,500 down (10%) = $346,500 loan
• Interest rate: 6.75% (708 credit, 10% down)
• Principal & interest: $2,248/month
• Property taxes: $320/month ($3,840 annual)
• Homeowners insurance: $115/month ($1,380 annual)
• PMI: $187/month (0.65% annually on loan amount)

Total proposed housing payment: $2,870/month

Total DTI calculation: ($1,050 existing debts + $2,870 housing payment) / $7,667 income = 51.1%

Wait—that’s not 46.2%. What happened?

Here’s where I made my first mistake: I calculated DTI using my total proposed payment including taxes and insurance. But conventional lenders calculate DTI using two ratios:

Front-End Ratio (Housing Only): $2,870 / $7,667 = 37.4%

Back-End Ratio (All Debts + Housing): ($1,050 + $2,870) / $7,667 = 51.1%

The back-end ratio (51.1%) is what matters most for conventional loans. The underwriter’s denial letter cited my back-end DTI as the issue—but I later learned they actually use only principal, interest, taxes, insurance, and HOA (PITIA) in the housing portion, not PMI.

Let me recalculate properly:

Housing payment for DTI purposes:

• Principal & interest: $2,248
• Property taxes: $320
• Insurance: $115
• (PMI is not included in DTI calculation for most lenders)

Housing PITI: $2,683/month

Correct Back-End DTI: ($1,050 existing + $2,683 housing PITI) / $7,667 = 48.7%

Still too high, but closer to reality than my 51.1% initial calculation.

Actually, I made another error. Let me check with my actual loan officer’s calculation from my denial letter…

The denial letter stated my DTI as 46.2%. After calling my loan officer, she explained the discrepancy: she was using my gross monthly income as $8,500 (including average monthly vehicle allowance I receive for work travel), which I had forgotten about.

Correct calculation with accurate income: ($1,050 + $2,683) / $8,083 = 46.2% DTI

That matched the denial letter. So my actual DTI was 46.2%, not 48.7% or 51.1%.

Why 46.2% Was Denied (The DTI Threshold Reality)

My loan officer explained that while Fannie Mae guidelines technically allow up to 50% DTI for conventional loans, most lenders impose “overlays” (additional restrictions) based on risk factors:

Standard Conventional DTI Limits by Credit Score and Down Payment:

• 760+ credit, 20%+ down: Up to 50% DTI allowed
• 740-759 credit, 15-20% down: Up to 48% DTI
• 720-739 credit, 10-20% down: Up to 46% DTI
• 700-719 credit, 10-20% down: Up to 45% DTI
• 680-699 credit, 10-20% down: Up to 43% DTI
• 620-679 credit, 5-10% down: Up to 43% DTI

At my 708 credit and 10% down, my lender’s overlay limit was 45% DTI. My 46.2% exceeded that threshold by 1.2 percentage points.

The underwriter wrote: “Borrower’s DTI of 46.2% exceeds maximum 45% threshold for 708 credit score and 10% down payment. Approval requires either: (1) DTI reduction to 45% or below, (2) credit score improvement to 720+, or (3) down payment increase to 20%+.”

I had three options to get approved:

1. Reduce my monthly debts by at least $100 to bring DTI to 44.9%
2. Improve my credit from 708 to 720+ (12-point improvement)
3. Increase down payment from 10% ($38,500) to 20% ($77,000)

Option 2 would take 3-6 months minimum. Option 3 required an additional $38,500 I didn’t have. Option 1 was my only realistic path.

How I Reduced DTI from 46.2% to 43.1%

I decided to pay off my smallest debts to reduce my monthly obligations below the 45% threshold.

Strategy 1: Pay Off Credit Cards

My credit cards had $4,200 total balance with $125 minimum payments across 3 cards. If I paid off all cards entirely using savings, I would eliminate $125/month in DTI.

New DTI: ($925 remaining debts + $2,683 housing) / $8,083 = 44.6%

This got me under 45%, but barely—and it would reduce my savings from $52,000 to $47,800, leaving me less cushion after my $38,500 down payment.

Strategy 2: Pay Off Student Loans

My student loans had $18,600 balance with $380/month payment. If I paid off the entire balance, I would eliminate $380/month in DTI.

New DTI: ($670 remaining debts + $2,683 housing) / $8,083 = 41.5%

This got me well under 45%, but it would reduce my savings from $52,000 to $33,400—barely enough to cover $38,500 down payment plus closing costs. Too risky.

Strategy 3: Hybrid Approach (Pay Off Cards + Reduce Student Loan)

What if I paid off my credit cards ($4,200) AND made a large principal payment on my student loans to reduce the monthly payment?

I called my federal loan servicer and learned that making a $10,000 principal payment would reduce my remaining balance from $18,600 to $8,600, which would lower my monthly payment from $380 to $180 under my current 10-year standard repayment plan (they would recalculate based on new balance and remaining term).

Total cash needed: $4,200 (cards) + $10,000 (student loan) = $14,200

New monthly debts:

• Car payment: $545
• Student loan: $180 (after paydown and recalculation)
• Credit cards: $0

Total new monthly debts: $725

New DTI: ($725 + $2,683) / $8,083 = 42.2%

This got me to 42.2% DTI—well under the 45% threshold—and still left me with $37,800 in savings ($52,000 - $14,200), which was just enough for my $38,500 down payment if I used a bit of my next paycheck.

Actually, this would leave me SHORT on down payment by $700. I needed to find another $700 or reduce my debt payoff amount.

Final Strategy: Pay Off Cards + Smaller Student Loan Payment

I revised the plan: Pay off credit cards completely ($4,200) and make $8,500 principal payment on student loans instead of $10,000. This would reduce student loan balance from $18,600 to $10,100, lowering monthly payment from $380 to $212.

Total cash needed: $4,200 + $8,500 = $12,700

New monthly debts:

• Car payment: $545
• Student loan: $212
• Credit cards: $0

Total: $757/month

New DTI: ($757 + $2,683) / $8,083 = 42.5%

Remaining savings after debt payoff: $52,000 - $12,700 = $39,300

This gave me enough for $38,500 down payment plus $800 cushion—tight, but workable.

I executed this strategy in early October, paid off my cards and reduced student loans, and waited for the new balances to report to my credit bureaus and my loan servicer to confirm my new monthly payment amount.

Reapplication with 42.5% DTI (Approved in 6 Days)

Three weeks after my initial denial, I reapplied with updated information:

• Same income: $8,083/month
• New monthly debts: $757 (down from $1,050)
• Same housing payment: $2,683
• New DTI: 42.5% (down from 46.2%)

My loan officer resubmitted to underwriting with a letter explaining: “Borrower paid off credit card debts and made substantial student loan principal payment, reducing monthly obligations by $293. New DTI of 42.5% meets program guidelines for borrower’s 708 credit and 10% down payment.”

The underwriter approved my loan in 6 days. No other conditions, no additional documentation requests. The only difference between denial and approval was reducing my DTI by 3.7 percentage points.

The Hidden Benefits of Paying Off Debt to Qualify

Reducing my DTI to qualify for the mortgage had several unexpected positive effects:

My Credit Score Improved to 728

Paying off $4,200 in credit card balances dropped my utilization from 42% to 0%, which boosted my credit score:

• Before: 708 middle score
• After (45 days later): 728 middle score

This 20-point improvement moved me into a better credit tier for PMI pricing. My loan officer was able to requote my PMI at 0.55% instead of 0.65%, saving me $29/month ($174/year).

Over the life of my PMI (approximately 6-7 years until automatic removal at 78% LTV), this saved me $2,000+.

My Interest Rate Improved by 0.125%

The credit score improvement from 708 to 728 also qualified me for slightly better interest rate: 6.625% instead of 6.75%.

On my $346,500 loan:

• 6.75% rate: $2,248/month P&I
• 6.625% rate: $2,220/month P&I

Savings: $28/month or $336/year

Over 5 years, this saved me $1,680 in interest.

My Monthly Budget Improved by $293

Beyond qualifying for the mortgage, I now had $293 less in monthly debt obligations. This made my overall budget more comfortable and gave me more cushion for unexpected home expenses after moving in.

Total Financial Impact:

• Cost: $12,700 used from savings to pay off debt
• Monthly payment savings: $57/month ($29 PMI + $28 interest)
• Annual savings: $684
• Payback period: 18.6 months ($12,700 / $684)

After 18 months, the improved rate and PMI pricing would fully offset the cash I used to pay off debt. Everything after that was pure savings plus the benefit of lower monthly expenses.

DTI Limits Vary by Lender and Loan Type

One thing that confused me: different loan officers I spoke with quoted different maximum DTI limits. Here’s what I learned:

Fannie Mae/Freddie Mac Guideline Maximum: 50% DTI

This is the theoretical maximum allowed by conventional loan guidelines for borrowers with strong compensating factors (high credit, large reserves, stable employment).

Typical Lender Overlays: 43-48% DTI

Most lenders impose lower limits based on:

• Credit score (lower credit = lower DTI limit)
• Down payment (lower down payment = lower DTI limit)
• Reserves (fewer reserves = lower DTI limit)
• Loan amount (higher loan amounts sometimes face tighter DTI)

FHA Maximum: 50-57% DTI

FHA allows higher DTI ratios than conventional—up to 50% with automated underwriting approval, or up to 57% with manual underwriting and strong compensating factors.

If my conventional loan had been denied even after reducing DTI to 42.5%, FHA would have been my backup option since FHA allows up to 50% DTI with much less strict overlays.

Jumbo Loans: 38-43% DTI typically

Jumbo loans (above $766,550 conforming limit) impose stricter DTI limits, usually maxing out at 43% and preferring 38% or below for optimal approval odds.

When to Pay Off Debt vs. Keep Cash for Down Payment

My decision to use $12,700 of savings to pay off debt instead of adding it to my down payment worked out well, but it’s not always the right strategy. Here’s when each approach makes sense:

Pay Off Debt to Reduce DTI if:

• Your DTI is within 2-5 percentage points of approval threshold
• Paying off debt drops you below the threshold decisively (not just barely)
• You still have enough cash remaining for down payment + closing costs + 2-3 month reserves
• Your interest rate on the debt is high (credit cards at 18-24% especially)
• You plan to build savings back up quickly after closing

Keep Cash for Larger Down Payment if:

• Your DTI is already under the threshold (no need to pay off debt for qualification)
• Paying off debt would leave you with minimal reserves after closing
• Increasing down payment allows you to avoid PMI (getting to 20% down)
• Increasing down payment significantly improves your interest rate tier
• The debt you would pay off is low-interest (student loans at 3-5%, car loan at 4-6%)

In my case, I was 1.2 percentage points over the DTI limit, paying off debt got me 2.7 points under the limit (decisive approval), and I maintained just enough reserves after closing. The math worked.

Resources That Helped Me Navigate DTI Issues

After my initial denial, I used several resources to understand DTI limits and plan my strategy:

Browse Lenders connected me with a loan officer who specialized in DTI optimization. She showed me the overlay matrix for my credit score and down payment, calculated exactly how much debt I needed to pay off to get approved, and helped me understand the tradeoff between using cash for debt payoff versus down payment increase.

Middle Credit Score education helped me understand how paying off credit cards would improve my credit score beyond just reducing DTI. The 20-point improvement from debt payoff qualified me for better PMI and rate pricing, which offset some of the cost of using savings for debt payoff.

If you’re close to DTI limits, I strongly recommend:

1. Get your exact DTI threshold from your lender before applying. Don’t assume 50% is the limit—ask what their overlay maximum is for your specific credit score and down payment.

2. Calculate multiple scenarios. Compare paying off different debts to see which combination gives you the lowest DTI with least cash used.

3. Consider credit score impact. Paying off credit cards improves utilization, which can boost your score 10-40 points in 30-60 days—potentially qualifying you for better rates and PMI pricing beyond just DTI approval.

4. Keep adequate reserves. Don’t drain all your savings to reduce DTI. Lenders prefer to see 2-6 months reserves after closing, and you need emergency funds for unexpected home expenses.

My DTI journey from 46.2% denial to 42.5% approval taught me that conventional loan guidelines are more nuanced than the “50% DTI maximum” I had read about online. Real-world approval depends on the combination of credit score, down payment, reserves, and lender-specific overlays—and sometimes getting approved means strategically paying off debt even if it temporarily reduces your cash position.

For buyers hovering near DTI limits, the difference between denial and approval can be as small as $100-$200/month in debt reduction. Understanding your lender’s exact threshold and calculating the precise amount of debt to pay off is the key to optimizing your approval odds without unnecessarily depleting your savings.

Working with experienced loan officers who understand DTI overlays and can model different scenarios helps you find the optimal balance between debt reduction, down payment size, and post-closing reserves—maximizing your approval odds while preserving financial flexibility for homeownership.