Agency rules
Debt-to-Income, and the Exclusions Nobody Applies
Half the debts on your credit report can come out of the ratio if you document them properly. Most people are never told that.
Debt-to-income is your monthly debt payments divided by your monthly gross income. Simple arithmetic, and then a long list of exceptions that decide whether the file works.
What goes in
- The new mortgage payment: principal, interest, taxes, insurance, HOA, mortgage insurance
- Minimum credit card payments
- Car loans and leases
- Student loans
- Personal loans
- Child support and alimony you pay
- Any instalment debt with more than 10 months remaining
What does not
- Utilities, phone, internet, insurance that is not on the property
- Groceries, childcare, medical premiums
- Your current rent — the new payment replaces it
- 401(k) loans, on most programs, because you are paying yourself
The exclusions worth knowing
Instalment debt with fewer than 10 months left. A car loan with 8 payments remaining usually comes out entirely. If you are close, paying down to under 10 months can be worth more than paying the balance.
Business debt paid by the business. You signed personally, so it is on your report. Show twelve months of payments made from business accounts — canceled checks or business statements — and it comes out of your ratio.
This is a documented exclusion and it is the single most useful thing on this page for a self-employed borrower. Plenty of loan officers do not know it exists.
Debt that will be paid off at closing. It can be excluded if you document the payoff, though some programs require the account to be closed.
Authorised-user accounts. If the account is not yours and someone else has been paying it, it can often be excluded with proof.
What raises the ceiling
Above the usual limits, lenders look for compensating factors: significant reserves, a large down payment, a long stable job history, a low loan-to-value, or a housing payment that is not much above what you already pay.
Where the ratio stops mattering
On an investment property, a DSCR loan does not calculate your debt-to-income at all. The property's rent against its own payment is the test. Your personal ratio is never examined.
For self-employed borrowers, the income half of the fraction is usually the real problem rather than the debt half. That is covered on how lenders calculate self-employed income.
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Questions people ask
What is a good debt-to-income ratio for a mortgage?
Under 43% is comfortable almost everywhere. Conventional allows up to 50% in many scenarios, FHA can go higher with compensating factors, and non-QM programs often allow more still.
Does rent count in debt-to-income?
Your current rent does not count, because you will not be paying it once you own. The new mortgage payment replaces it in the calculation.
Can business debt be excluded from my DTI?
Yes, if you can show the business has paid it for twelve months from business accounts. That is a documented exclusion and it rescues a lot of self-employed files.
Do student loans in deferment count?
Usually yes. Most programs require a payment to be counted even in deferment, often a percentage of the balance if no payment is stated.
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