What debt is considered when getting a mortgage?

Special considerations for your DTI ratio and your mortgage

If you get a mortgage, there are several types of loans included in your DTI using the actual monthly loan payment or payment amount. These include in particular the following:

  • Mortgage payment
  • Car loans
  • Personal loans
  • alimony

However, there are several types of loans that have special guidelines when it comes to calculating DTI.

Student loans suspended or forborne

Many factors determine how student loans are included in your DTI calculation. The calculation depends not only on the type of loan you get, but also on whether the loan is in repayment or in a deferment or forbearance period.

When the loan is suspended or forborne, the following guidelines will apply.

If you get a conventional loan through Fannie Mae or a jumbo loan elsewhere, we first look at the actual payment on the credit report. If no payment is listed on the credit report or the payment is listed as zero, we qualify you based on paying 1% of the balance per month.

Yes this amount is too high to qualify, we can also qualify you using the official payment shown on your statement. Payment cannot be estimated.

If the loan is from Freddie Mac, they use the actual payment on the credit report or qualify you based on 0.5% of the outstanding balance. If it does not appear on your credit and you do not qualify with 0.5% of the outstanding balance, we may also use the official statement payment.

For USDA loans, payment is based on 1% of the outstanding loan balance or $10 per month, whichever is greater.

For FHA loans, the payment is whichever is greater: $10, 1% of the outstanding loan balance per month, or the actual payment shown on your credit report.

The VA makes this easy because their policies are the same whether your loan is in deferral, forbearance, or repayment. The amount included in your DTI is the greater of the payment shown on your credit report or 5% of your outstanding loan balance divided by 12.

Yes you had $60,000 in student loans, your monthly payment for your DTI would be $250 ($60,000 × 0.05 = $3,000/12 = $250).

If your loan is in deferment or forbearance and repayment is not due to begin within 12 months of closing, the VA does not consider this in your DTI.

Student loans in repayment

Now that we’ve covered what happens if your loan is deferred or forborne, what happens when you actually repay your loan? In this case, the following guidelines will apply.

If you get a conventional loan through Fannie Mae, they first use the actual payment on the credit report. If no payment is listed, 1% of the existing balance is used.

Yes too high to qualify, we may use the actual payment shown on your statement, including any payments from an income-tested repayment plan. This includes $0 payments if you have documentation from your loan officer showing plan approval before closing.

For jumbo loans, the actual credit payment report is used first. If no payment is indicated, 1% of the outstanding balance is used. If it’s too high to qualify, they can use the actual payout as long as it’s not $0.

If it is a conventional loan through Freddie Mac and the payment on the credit report or student loan statement is a non-zero number, the amount from the report or statement can be used. If the payment on the credit report is $0, they use 0.5% of the outstanding balance.

For FHA or USDA loans, you qualify with the higher of the following:

  • The actual payment on the credit report
  • 1% of existing balance
  • $10

If you can show documentation that the payment information statement will pay off the entire balance without increasing your payment, this can also be used to qualify for FHA and USDA loans.

The VA guidelines are the same as if the loan was suspended or forborne.

Pension

When it comes to alimony, different regulations apply depending on who is investing in your mortgage.

If you get a conventional loan, FHA loan, or VA loan, the child support payment may be subtracted from your income rather than included in your debts. This could help you qualify more easily.

With a USDA loan or jumbo loan, existing or agreed-upon child support payments are considered debt included in your DTI.

Credit card

When you qualify for a mortgage, you qualify based on the monthly payments you need to make. Based on this, you are not qualified based on the total amount of your monthly credit card balances, but rather the total amount of minimum payments for your credit card accounts.

Of course, you want to pay off as much (if not all) of your credit card balance as you can every month, because you’ll reduce the amount of interest you pay or even avoid it altogether. It’s also better for your credit score because you’ll maintain very minimal credit usage.