When a mortgage lender adds up what is considered monthly debt when buying a home, they include recurring payments tied to borrowed money or a court order: mortgage or rent, car loans and leases, student loans, credit card minimums, personal loans, child support, alimony, and wage garnishments. Ordinary living expenses — utilities, groceries, insurance premiums, gas, phone, streaming — are not counted, even though they leave your bank account every month.
The distinction matters because lenders use your debts, not your bills, to calculate your debt-to-income ratio. Federal regulations under 12 CFR § 1026.43 require mortgage lenders to verify your ability to repay, and your existing debt load is central to that analysis.1eCFR. 12 CFR 1026.43 – Minimum Standards for Transactions Secured by a Dwelling Fannie Mae, for instance, allows a back-end DTI of up to 50 percent through its automated underwriting system and up to 45 percent for manually underwritten loans when the borrower has strong credit and reserves.2Fannie Mae. Debt-to-Income Ratios Every dollar of monthly debt eats into that ratio. Every dollar of living expense does not.
Installment Loans Count in Full
Fixed-payment loans are the most straightforward category. Your mortgage principal, interest, property taxes, and homeowner’s insurance (bundled as PITI) all roll into one obligation. Auto loans count at the full scheduled payment. Personal loans from a bank, credit union, or online lender count the same way.
One nuance: installment debts with fewer than ten months of payments remaining can sometimes be excluded from your DTI when the payments don’t significantly affect your ability to handle the new loan. Auto leases do not get that treatment. Lease payments must be included regardless of how many months remain on the lease.2Fannie Mae. Debt-to-Income Ratios
Student Loans Count Even With a $0 Payment
Student loans are counted as monthly debt even when you aren’t currently making payments. Deferment, forbearance, and income-driven plans that show $0 owed don’t get you out of the calculation. The lender estimates a payment instead, using a formula that depends on your loan program.
For conventional loans backed by Fannie Mae, the lender uses either 1 percent of the outstanding balance or the fully amortizing payment based on documented loan terms, whichever the lender selects.3Fannie Mae. Monthly Debt Obligations For FHA loans, the lender uses the payment shown on your credit report when it’s above zero, or 0.5 percent of the outstanding balance when the credit report shows $0.4Department of Housing and Urban Development (HUD). Mortgagee Letter 2021-13 Student Loan Payment Calculation of Monthly Obligation
On $50,000 of student debt, a conventional lender counts $500 per month against you; an FHA lender counts $250. That difference alone can move how much house you qualify for, so ask your loan officer which calculation applies before you shop.
Credit Cards and Other Revolving Accounts
Credit cards and home equity lines of credit are counted at the minimum monthly payment shown on your credit report or statement, not the balance. This is true even if you pay the card in full every month. The minimum is what lands in the DTI.
Keeping balances low relative to your credit limits helps twice over: it drops the minimum that gets counted, and it improves your credit utilization ratio, which feeds into your credit score.
Authorized User Accounts
If you’re an authorized user on someone else’s card rather than the primary account holder, treatment depends on the underwriting method. For loans processed through Fannie Mae’s automated system, the lender checks whether you’ve actually been making payments; if you have, the debt is included, and if not, it can be excluded.5Fannie Mae. FAQ: Top Trending Selling FAQs
Manual underwriting is stricter. An authorized user tradeline generally cannot be considered unless you can document that you’ve been the sole payer for at least 12 months, or the account belongs to another borrower on the same application. If the account holder is your spouse and your spouse isn’t on the mortgage, the payment still has to be included in your DTI.6Fannie Mae. Authorized Users of Credit
Child Support, Alimony, and Garnishments
Payments required by a court order count as monthly debt and have to be disclosed on your loan application. Child support and alimony go straight into the DTI at the ordered amount.
When wage garnishment is involved for support payments, the lender uses whichever figure is larger: the amount from the most recent court order or the actual garnishment shown on pay stubs.7FHA Single Family Housing Policy Handbook. Origination through Post-closing/Endorsement Active garnishments for consumer debts (defaulted credit cards, unpaid personal loans) also count. Whatever is coming out of your paycheck under a garnishment order shows up as a monthly debt obligation in underwriting.
Co-Signed Loans
If you co-signed a loan, the full monthly payment normally counts in your DTI even when the primary borrower has been handling every payment. You’re legally on the hook, so the lender treats it as your debt.
There is one way out. You can get a co-signed debt excluded if you document that the other borrower has made every payment for the past 12 consecutive months. The proof required is specific: 12 months of canceled checks or bank statements from the person actually paying, with no late payments in that stretch.3Fannie Mae. Monthly Debt Obligations Without the paper trail, the payment stays.
Collections, Judgments, and Tax Debts
Outstanding collection accounts and court judgments can affect your application even when there is no scheduled monthly payment. For conventional loans underwritten manually through Fannie Mae, non-medical collection accounts don’t necessarily have to be paid off before closing as long as the individual balance is under $250 or the combined total is $1,000 or less. Balances above those thresholds generally have to be resolved before closing.8Fannie Mae. Debts Paid Off At or Prior to Closing Automated underwriting may handle collections differently based on the overall risk profile.
An IRS installment agreement counts as monthly debt. The agreed monthly payment goes into your DTI the same way any other installment debt would.
What Doesn’t Count
Most of the bills that show up in your checking account each month are living expenses, not debt. Living expenses are payments for a service or product as you use it. Debt is repayment of borrowed money. Lenders exclude the following from DTI:
- Utilities: electric, gas, water, sewer, and trash service
- Cell phone, internet, cable, and streaming subscriptions
- Groceries, household supplies, and personal care items
- Health, auto, life, and renter’s insurance premiums (homeowner’s insurance is already inside your mortgage payment)
- Gas, transit fares, tolls, and routine car maintenance
Underwriting assumes these are covered by whatever income remains after debt obligations are met. A high electric bill or expensive grocery habit won’t hurt your DTI directly. It also won’t show up in the ratio at all, which means DTI can approve you for a loan that leaves you thin once real life gets paid for. Run your own budget alongside the lender’s math.
One exception worth flagging: VA home loans treat childcare expenses as a debt obligation. If you’re applying for a VA loan, the lender will ask for documentation of your childcare costs and factor them into qualifying.9VA Home Loans. VA Credit Standards Course This is specific to VA and not standard across other loan programs.
Buy Now, Pay Later and Medical Debt
Short-term installment plans from services like Affirm, Klarna, and Afterpay sit in a shifting area. Most don’t appear on traditional credit reports, so lenders often can’t see them during underwriting. Current FHA policy largely excludes them because short-term debts paid off within ten months generally don’t need to be counted, as long as all such debts combined stay under 5 percent of your gross monthly income.10Federal Register. Request for Information Regarding Buy Now Pay Later Unsecured Debt FHA opened a formal request for input in mid-2025 on whether to change that treatment, so the rules may tighten. Disclose active balances to your loan officer rather than hoping they go unnoticed.
Medical debt is also uncertain. The three major credit bureaus have voluntarily limited how much medical debt they include on credit reports in recent years, and the CFPB attempted to ban medical debt from credit reports outright. A federal court blocked that rule in mid-2025. Bureaus retain the option to report medical debt, and any that does appear on your report can factor into a loan decision.