When you apply for a mortgage, a lender looks at more than your salary and credit score. They also want to understand how much of your income is already committed to paying debts. This is where your debt-to-income ratio, or DTI, comes in.
But figuring out which debts count can be confusing. Does your car payment count? What about student loans, credit card balances, child support, or a personal loan? Do rent, groceries, electricity, and insurance affect the calculation in the same way?
The key distinction is that mortgage DTI generally measures qualifying monthly debt obligations against your gross monthly income, not every expense in your household budget.
Understanding that difference can help you estimate your ratio more accurately, identify what may be affecting your mortgage eligibility, and prepare before speaking with a lender.
Mortgage Payments and Other Home Loans
Your current mortgage payment and the housing payment for the home you want to buy can both affect your DTI calculation. Lenders generally consider qualifying housing expenses such as principal, interest, property taxes, homeowners insurance, applicable mortgage insurance, and certain association or property-related payments.
If you already own a home, the lender may also consider its mortgage payment, even if you plan to sell it. Whether that existing obligation can be excluded depends on your circumstances and the applicable underwriting rules.
Other real estate loans, including a second mortgage or a home equity line of credit (HELOC), may count as well. If you are purchasing an investment property or a second home, the lender will apply additional rules to determine which housing payments and rental income or losses belong in your calculation.
Car Loans and Other Installment Loans
Monthly payments on car loans, personal loans, and other installment debts generally count toward your mortgage DTI. These are loans with scheduled payments over a defined repayment period.
For example, imagine you earn $6,500 per month before taxes and pay $480 toward a car loan and $220 toward a personal loan. Those payments would generally contribute $700 to your monthly debt obligations.
Some conventional mortgage guidelines allow certain installment debts with ten or fewer monthly payments remaining to be excluded. However, this is not automatic: a lender may still consider a short-term debt if its payment significantly affects your ability to manage the mortgage.
Do not assume that a loan will be ignored simply because you are close to paying it off. Ask your lender how the remaining term and payment amount will be treated.
Credit Cards and Store Cards
Credit card debt counts toward your DTI, but lenders generally focus on the required monthly payment rather than simply adding the entire outstanding balance to your monthly obligations.
Suppose your credit card balance is $3,000 and the minimum monthly payment is $90. The lender may use that $90 payment, subject to the applicable underwriting rules and the information available in your credit report.
If the credit report does not show a required payment, the lender may need to calculate one under the relevant loan guidelines.
For example, Fannie Mae conventional underwriting rules provide for a payment calculation based on 5% of the outstanding balance in specified circumstances when a lower payment cannot be documented. Other programs and lenders may use different methods.
Paying down your balances can sometimes help your DTI and credit profile. However, do not assume that reducing a balance will immediately change the payment used by the lender; the calculation depends on the documentation and rules applied to your application.
Student Loans, Including Deferred Loans
Student loans generally count toward your mortgage DTI, even if you are not currently making the payment you expect to make in the future. The qualifying payment depends on the loan’s repayment status and the mortgage program’s guidelines.
For example, if your credit report shows a required monthly payment of $250, the lender may be able to use that amount if it meets the applicable requirements.
But what if your payment is $0?
Under Fannie Mae’s conventional guidelines, an eligible income-driven repayment plan with a documented $0 monthly payment may be treated as a $0 qualifying payment.
Deferred loans or loans in forbearance may be subject to a different calculation, such as a payment based on a percentage of the outstanding balance or a fully amortizing payment.
These rules vary by program, so a $0 payment on your student loan statement does not necessarily mean the lender will count nothing.
If student debt is one of your biggest concerns, read more about student loan debt and mortgage approval to understand how it may affect your application.
What to Read Next
Personal Loans, Buy Now, Pay Later, and Other Borrowing
Personal loans and other borrowing arrangements can affect your DTI when they create qualifying monthly obligations. This may include loans used to pay medical bills, finance purchases, consolidate credit card debt, or cover other expenses.
Buy now, pay later arrangements require particular attention. Whether a payment is included depends on the product, how the obligation is reported or documented, and the underwriting rules for the mortgage.
A short repayment period does not automatically mean the debt is irrelevant. Some short-term obligations may still be considered when they materially affect your ability to make the mortgage payment.
Before applying, make a list of your active borrowing arrangements, including any that do not appear on your credit report. Disclose them to your lender so the qualifying calculation can be completed accurately.
Student Housing, Rent, and Lease Payments
Rent is not treated exactly like a car loan or credit card payment in every mortgage calculation. The treatment depends on your housing situation and the type of mortgage application.
For example, when you are buying a home to live in, your proposed mortgage housing payment generally replaces your current rent in the calculation of your future housing costs. Your existing rent is not ordinarily added on top of the new mortgage payment if you will no longer be responsible for it after moving.
However, if you are applying for a second home or investment property, your existing housing obligations may remain relevant.
Car leases and other qualifying lease payments are generally considered monthly obligations. Fannie Mae guidelines specifically include lease payments in the DTI calculation regardless of when the lease expires.
If you are planning to lease a car before buying a house, consider discussing the timing with your mortgage lender. A new lease can increase the monthly obligations used to assess your application.
Child Support, Alimony, and Court-Ordered Payments
Required child support, alimony, and certain other legal obligations may count toward your mortgage DTI. The exact treatment depends on the payment type, the remaining obligation period, and the relevant mortgage guidelines.
For example, Fannie Mae’s conventional guidelines generally require qualifying alimony, child support, and maintenance payments that continue for more than ten months to be considered in recurring monthly debt obligations. Some alimony arrangements may instead be handled by adjusting qualifying income under the applicable rules.
Voluntary payments may be treated differently from legally required payments. The lender may request a divorce decree, court order, separation agreement, or other supporting documentation to establish the amount and duration.
If you receive qualifying support payments, rather than pay them, the lender may be able to consider that income if the applicable requirements are satisfied and you ask for it to be included.
Tax Payment Plans, Garnishments, and Other Legal Obligations
A payment plan with the tax authorities, wage garnishment, or another recurring legal obligation may affect your mortgage qualification. Do not assume that these payments will be ignored simply because they are not conventional loans.
For example, a federal income tax installment agreement may need to be included in the DTI calculation under applicable guidelines. Garnishments and other recurring obligations can also require consideration, depending on their nature and duration.
The lender may ask for documents showing the payment amount, remaining balance, and repayment terms. If you have an existing agreement, provide accurate information rather than estimating the amount from memory.
These obligations are particularly important to disclose early because they may not always be obvious from a simple list of credit card and installment loan payments.
Debts That Someone Else Pays for You
What happens if a loan is in your name, but another person makes the monthly payments?
In certain circumstances, a lender may be able to exclude a debt from your DTI if you can document that someone else has consistently paid it and the applicable mortgage guidelines permit the exclusion.
For example, Fannie Mae conventional guidelines allow certain non-mortgage debts to be excluded when the required documentation establishes a qualifying payment history. This may involve providing bank statements or canceled checks covering the most recent 12 months.
However, simply saying that a parent, former spouse, or business pays the debt is not enough. The lender must evaluate the obligation under the rules for the specific loan.
If a mortgage is involved, additional requirements apply. Even when another person makes the payments, the lender may still need to account for the mortgage unless the applicable exclusion conditions are met.
Which Expenses Usually Do Not Count Toward Mortgage DTI?
Not every monthly expense is considered a debt payment in a standard mortgage DTI calculation.
| Expense | Typical treatment |
|---|---|
| Federal and state income taxes | Not counted as a separate monthly debt payment |
| Groceries and household supplies | Not usually included in DTI |
| Electricity, water, and internet bills | Not usually included in DTI |
| Gasoline and commuting costs | Not usually included in DTI |
| Childcare expenses | Not usually included in standard DTI |
| Voluntary retirement contributions | Not usually included as debt |
| Voluntary savings transfers | Not usually included as debt |
These expenses still matter when deciding whether a mortgage is affordable. A lender’s DTI calculation is not a complete household budget.
For example, two borrowers could have the same DTI but very different living costs. One might have substantial childcare expenses or high commuting costs, while the other has fewer day-to-day obligations. Their mortgage approval calculations might look similar even though their actual financial flexibility differs.
That is why it is worth comparing your expected mortgage payment with your take-home pay and everyday expenses, not just the ratio used by the lender.
How to Calculate Your DTI With the Right Debts
Once you know which obligations may count, estimating your ratio becomes easier.
Imagine your gross monthly income is $7,000, and your expected monthly obligations are:
- Proposed mortgage housing payment: $1,900
- Car loan: $450
- Student loan: $200
- Credit card minimum payments: $150
- Personal loan: $100
Your total qualifying monthly obligations would be $2,800.
Divide $2,800 by $7,000 and multiply by 100. Your estimated DTI would be 40%.
This is an illustrative calculation, not a mortgage approval decision. Your lender may calculate some payments differently or identify additional obligations based on your documents.
Use the debt-to-income ratio calculator to estimate your ratio, then compare it with the payment you could comfortably manage using the mortgage affordability calculator.
How to Prepare Before Applying for a Mortgage
You do not need to wait until you have every debt paid off to begin preparing. Instead, start by gathering accurate information about your current obligations.
- List every debt. Include credit cards, student loans, installment loans, leases, support payments, and other recurring obligations.
- Record the required monthly payment. Use recent statements and loan documents rather than relying on memory.
- Check your credit reports. Look for debts or payment amounts that may need explanation or updated documentation.
- Estimate your future housing payment. Include property taxes, homeowners insurance, applicable mortgage insurance, and other relevant housing costs.
- Ask your lender about unusual obligations. Deferred student loans, debts paid by others, tax payment plans, and short-term installment debts may require special treatment.
- Review your actual budget. Make sure the proposed mortgage leaves enough room for living expenses, savings, and unexpected costs.
If your estimated DTI is high, you may be able to improve it by reducing monthly debt payments, increasing documented qualifying income, or considering a less expensive home. For more guidance, explore mortgage affordability before deciding how much to borrow.
Frequently Asked Questions
Conclusion
Knowing which debts count toward your mortgage DTI ratio can help you prepare a more accurate estimate of your borrowing position. Car loans, credit cards, student loans, personal loans, qualifying housing payments, and certain legal obligations commonly affect the calculation.
Ordinary living expenses such as groceries and utilities generally do not count as monthly debt payments, although they still affect your budget.
Before applying, gather your current payment amounts, review your credit information, and ask your lender how any unusual obligations will be treated. A more accurate DTI estimate can help you identify potential problems early and make a more informed decision about the home you can afford.
