The Quick Read: Add up your monthly debt payments, including the new mortgage payment, and divide that total by your gross monthly income, which is your pay before taxes. On a cash-out refinance, the new, larger housing payment replaces your old one. Debts the new loan pays off at closing come out of the total. Most automated conventional findings allow a total ratio up to 50%, subject to lender guidelines and full file review.
Key Takeaways
- Use gross income, not take-home pay.
- The housing payment in the formula is the NEW payment on the larger loan, not your current one.
- Debts paid off at or before closing drop out of the ratio. That is how a debt-consolidation cash-out can lower DTI.
- Conventional cash-out tops out at 80% LTV on a one-unit primary residence, and DTI is weighed alongside credit, equity, and reserves.
- Meeting the ratio does not guarantee approval. Nothing here is a commitment to lend. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
What Is Debt-to-Income, and Why Does a Cash-Out Lender Check It?
DTI is your total monthly debt payments divided by your gross monthly income. The Consumer Financial Protection Bureau defines it that way and notes that different loan products and lenders set different limits.
A lender checks it because a cash-out refinance makes your loan bigger. A bigger loan usually means a bigger payment. The ratio shows whether your income can carry it.
Two versions exist. Front-end DTI counts only the housing payment. Back-end DTI counts housing plus every other recurring debt. Underwriting decisions lean on the back-end number. When someone says “my DTI,” that is the figure to calculate.
How Do You Figure It, Step by Step?
Here is the process in the order a file reviewer works it.
1. Gather gross monthly income. Use stable, documented income. If pay varies, the CFPB says to estimate a typical month. A lender will average it from documents, so your estimate should match what the paperwork shows.
2. Build the new housing payment. Principal, interest, property taxes, homeowners insurance, and any HOA dues all count. Mortgage insurance counts if it applies. Use the new loan amount, not today’s balance. This is the step most homeowners get wrong.
3. List other recurring debts. Include car loans, student loans, personal loans, credit card minimums, and court-ordered support. Leases count too.
4. Remove debts the cash-out will pay off. More on this below. It is the mechanic that makes consolidation work.
5. Divide total monthly debts by gross monthly income. Multiply by 100 for a percentage.
6. Compare the result with the program ceiling. The lender runs the file through automated underwriting, which weighs DTI against credit, LTV, and reserves together.
What Counts and What Doesn’t
| Item | Counts in DTI? | Note |
|---|---|---|
| New mortgage payment (PITI plus HOA) | Yes | Based on the new loan |
| Old mortgage payment | No | Replaced, never added on top |
| Car, student, personal loans | Yes | If more than ten payments remain |
| Credit card minimums | Yes | Minimum, not balance |
| Child support or alimony | Yes | If required for more than ten months |
| Voluntary support payments | Not required | Lender may exclude |
| Utilities, groceries, phone | No | Living costs |
| Deferred student loans | Yes | Must be included |
The ten-month and support rules come from the Fannie Mae Selling Guide on monthly debt obligations. A debt paid by someone else can sometimes be excluded with documentation, unless that person is an interested party to the transaction.
Which Income Counts, and How Do You Convert It?
Salary, hourly pay, bonuses, self-employment income, and benefits can all count when they are stable and documented. Convert everything to a monthly figure.
| Income type | Monthly conversion |
|---|---|
| Annual salary | Divide by 12 |
| Hourly, steady hours | Hourly pay × weekly hours × 52 ÷ 12 |
| Bonus or commission | Average over the documented history |
| Self-employed | Average net income from traditional personal-income documentation |
Self-employed borrowers trip on one thing: the lender uses income after business deductions, not gross sales. A write-off that lowers your tax bill also lowers qualifying income. Variable income gets averaged, so one strong recent month does not carry the file. Rental income, where it applies, is usually counted at a reduced amount.
What Changes on a Cash-Out Refinance?
Three things differ from a purchase loan, and none of them shows up in a generic DTI calculator.
The housing payment is swapped, not stacked. Your current mortgage payment disappears at closing. The new payment, on a larger balance, takes its place. Count only the new one.
The DTI that counts is not your current number. Your DTI today uses your current payment. The lender uses the new one. A household sitting at a comfortable ratio now can land much higher after the loan is bigger.
Paid-off debts leave the ratio. Under the Fannie Mae Selling Guide rule on debts paid at or before closing, a revolving balance paid off at or before closing is excluded from DTI, and the account does not have to be closed. Installment loans paid down to ten or fewer remaining payments also drop out. The cash-out adds to the mortgage payment but removes those other payments. The net effect on DTI depends on both sides.
Closing costs matter too. They can be financed into the new loan, which raises the balance and therefore the payment. The cash you take out raises the balance the same way.
One caution on product choice. A limited cash-out refinance, which the lender’s rate-and-term programs use, allows only incidental cash back. If you want real cash from your equity, you need a true cash-out loan, and the ratio is built on that larger balance. Lendmire’s cash-out refinance programs are arranged on that basis through wholesale lenders.
Worked Example: Before and After
The scenario below is illustrative, not drawn from a real borrower file. The structure matters more than any exact number.
Picture a household with a mortgage payment, a car loan, a student loan, and three credit cards. Its DTI today sits in the mid-range, say around 38%. Here are three versions.
| Scenario | Housing payment | Other debts | DTI direction |
|---|---|---|---|
| Today | Current payment | All debts present | Baseline |
| Cash-out, cash kept | New, larger payment | All debts still present | Higher |
| Cash-out, cards paid at closing | New, larger payment | Card minimums removed | Often near or below baseline |
The middle row is the one that surprises people. Total debt did not grow much, yet DTI rose because the housing payment grew and nothing else left. The bottom row shows the consolidation effect. The card minimums come out of the total, which can offset much of the increase.
If the cards are not paid directly at closing, the payments stay in the ratio. A lender may require payoff at closing to remove them. Ask about that before you assume the savings.
What Ceiling Does the Lender Apply?
It depends on how the file is underwritten. Across the wholesale conventional programs, the automated finding governs most files, with a total ratio ceiling of 50%. The Fannie Mae Selling Guide on debt-to-income ratios sets the same 50% maximum for loans run through its automated system, and notes that the maximum can be lower on cash-out refinances and for borrowers without credit scores.
Manually underwritten loans are tighter. The ceiling is 36%, or up to 45% when the borrower meets the credit score and reserve factors in the Fannie Mae Eligibility Matrix. The same matrix ties reserve requirements to cash-out files where DTI exceeds 45%. In plain terms: the higher your ratio, the more cash you need left in the bank after closing. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Two more notes on ceilings. First, 43% is not the legal limit. It was the old cap for one class of qualified mortgage, and the CFPB replaced it with a price-based test. Many people still treat it as a benchmark. Second, FHA and VA use their own tests. FHA uses benchmark ratio pairs with documented compensating factors. VA leans on residual income, which is what is left each month after expenses, with its own ratio guideline. Both are program-specific and subject to lender guidelines. VA’s IRRRL streamline, by contrast, is VA-to-VA only and pays no cash out, so it is not a DTI-driven cash-out tool.
DTI Is One Piece of the Cash-Out File
Equity and credit are tested separately. A conventional cash-out refinance on a one-unit primary residence goes to 80% LTV, and to 75% on two- to four-unit properties and second homes. The existing first mortgage must be at least 12 months old, counted note date to note date, and a borrower must have been on title for 6 months, with exceptions for delayed financing, inheritance, and legal awards. The Fannie Mae Eligibility Matrix publishes the leverage limits by occupancy. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
A strong DTI cannot fix a thin equity position. A big equity cushion cannot fix a ratio over the ceiling. Wholesale conventional programs start at a 620 decision score, and a wholesale lane reaches 89.99% LTV with no mortgage insurance at a 680 score and a 50% ratio on a thirty-year fixed, primary residence, conforming balance. In Texas, state rules cap homestead cash-out, and that lane is not written there. Every figure is subject to lender guidelines and full file review.
Common Mistakes
- Using net pay. The ratio uses gross income, before taxes.
- Counting balances instead of payments. Only the monthly payment goes in.
- Double-counting the old mortgage. It is replaced.
- Forgetting escrow items. Taxes, insurance, HOA dues, and mortgage insurance belong in the housing figure.
- Skipping co-signed debt. If your name is on it, it usually counts unless someone else’s documented payments cover it.
- Assuming a paid-off card helps without a payoff at closing. The payment leaves the ratio only if the balance is paid at or before closing.
- Missing new debt. A new loan or card found before closing can trigger re-underwriting. If the recalculated ratio passes the program ceiling, the loan is not eligible.
If Your Ratio Is Too High
Try these in order of how often they work on cash-out files.
1. Take less cash. A smaller loan means a smaller payment.
2. Pay off accounts at closing. Direct payoff of cards or loans removes their payments from the total.
3. Pay down an installment loan to ten or fewer remaining payments before closing.
4. Add a co-borrower whose income and debts both go into the file. Their debts count too.
5. Document more income. Documented overtime, bonuses, or a second job can help if the history is stable.
6. Choose a different program. A different underwriting path may weigh the file differently.
The Dallas Fed notes that borrowers with DTIs above 43 percent have little leeway if their income declines. Qualifying and staying comfortable are different goals.
Documents to Gather Before You Apply
- Recent pay stubs and W-2s, or traditional personal-income documentation for self-employed income
- A statement for every debt you expect to remain
- Statements for debts you want paid at closing
- Homeowners insurance declarations page and property tax bill
- HOA statement, if any
- Divorce decree or support order, if payments apply
- Documentation if someone else pays a debt for you
For related reading, Lendmire’s piece Cash-Out Refinance Debt-to-Income: How the New Payment and the Paid-Off Debts Net Out walks through the same netting in more depth.
Key Terms Defined
Back-end DTI: Your housing payment plus all other monthly debts, divided by gross monthly income.
Front-end DTI: Your housing payment alone, divided by gross monthly income.
Gross monthly income: What you earn each month before taxes and deductions.
LTV (loan-to-value): The loan amount as a percentage of the home’s appraised value.
Residual income: The money left each month after major expenses, used by VA as its primary test.
Seasoning: The minimum time you must hold the home or existing loan before a cash-out is allowed.
Frequently Asked Questions
Do I include my current mortgage payment in the ratio?
No. The new mortgage payment replaces it. Counting both inflates your ratio and can make you think you will not qualify when you might.
Does paying off credit cards with the cash-out lower my DTI?
Usually, yes, as long as the payoff happens at or before closing. The card minimums leave the total, and the account does not need to be closed. The new mortgage payment grows, so the final result depends on how the two changes net out.
Is DTI the same as my credit score?
No. Credit scoring does not use your income, so DTI does not directly change your score. Lenders look at both, plus equity, reserves, and the property.
Can I qualify with a ratio above 45%?
Sometimes. On automated conventional files the ceiling is 50%, but reserve requirements apply on cash-out files above 45%. Manual files are tighter. Approval is subject to lender guidelines and credit review.
Does a co-borrower help?
It can, because their income joins the file. Their debts join too, so it helps only when their income outweighs their obligations.
Next Step
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Consumer Financial Protection Bureau: What is a debt-to-income ratio?
2. Fannie Mae Selling Guide B3-6-05, Monthly Debt Obligations
3. Fannie Mae Selling Guide B3-6-07, Debts Paid or Prior to Closing
4. Fannie Mae Selling Guide B3-6-02, Debt-to-Income Ratios
5. Fannie Mae Eligibility Matrix, manual-underwriting DTI tiers
6. Fannie Mae Eligibility Matrix, LTV limits by occupancy
7. Dallas Fed: Qualified mortgage DTI and payment risk
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Cash-Out Refinance for Homeowners Who Cashed Out Before · Can You Refinance a Cash-Out Refinance Again Later? · Can You Refinance Your Home Without a Cash-Out Refinance?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.