How Lenders Calculate Your Debt-to-Income Ratio
Your debt-to-income ratio determines whether you qualify for a mortgage. Lenders add up all your monthly debt payments plus your proposed housing payment, then divide by your gross monthly income.
Say you earn $8,000 per month and have a $400 car payment, $300 in student loans, $200 in credit card minimums, and a proposed mortgage payment of $2,400. Your total monthly obligations equal $3,300, giving you a DTI ratio of 41.25%.
The calculation includes more than just the obvious debts. Your housing payment covers principal, interest, taxes, insurance, mortgage insurance, and HOA dues. For other properties you own, lenders count the full mortgage payment plus all property-related expenses.
What Debts Count Toward Your DTI Ratio
Lenders must include specific types of debt in your ratio calculation. Understanding these categories helps you prepare accurate financial information.
Installment debts with more than 10 months remaining include car loans, personal loans, and furniture financing. If your car loan has 8 months left, it won't count against your DTI ratio. If it has 12 months remaining, the full payment gets included.
Student loans require special handling. Even loans in deferment or forbearance must include a payment amount in your DTI calculation. If your credit report shows a zero payment, lenders use 0.5% of the outstanding balance as your monthly payment.
A borrower with $50,000 in deferred student loans would have a $250 monthly payment added to their DTI ratio, even though they're not currently making payments.
Credit cards and revolving debt count based on the minimum payment shown on your credit report. If no minimum payment appears, lenders calculate 5% of the outstanding balance as your required payment.
Alimony and child support with more than 10 months remaining get included, but alimony gets subtracted from your income rather than added to your debt payments.
Required Documentation for Debt Verification
Lenders need specific paperwork to verify your debt obligations. The mortgage application alone isn't sufficient - they must cross-reference multiple sources.
Your credit report provides the foundation, but lenders also review recent pay stubs for payroll deductions and any other file documentation showing debt payments. They're looking for debts that might not appear on your credit report.
For student loans, provide your most recent servicer statement showing the current balance and payment amount. If you're on an income-driven repayment plan that will change before your first mortgage payment, bring documentation of the new payment amount.
For IRS payment plans, you need a copy of the approved installment agreement showing payment terms and remaining balance. If your agreement is pending approval, provide the application and ensure no tax liens have been filed.
For debts paid by others, gather 12 months of bank statements or cancelled checks proving someone else has been making timely payments. This person cannot be involved in your home purchase transaction.
Why These Rules Exist
Fannie Mae's DTI requirements protect both borrowers and investors from loans that become unaffordable. The guidelines ensure lenders capture a complete picture of your financial obligations.
The 10-month rule for excluding short-term debts makes sense because these payments will disappear soon after closing. Including a car payment with 8 months remaining would overstate your long-term debt burden.
Student loan rules address the reality that many borrowers use deferment or income-driven plans to minimize current payments. Using 0.5% of the balance prevents borrowers from qualifying based on artificially low payments that will increase later.
The requirement to include someone else's debt payments unless they've been paying for 12+ months prevents last-minute arrangements designed to game the system. A parent suddenly paying your credit cards right before applying doesn't demonstrate a sustainable arrangement.
Common Complications and Gotchas
Several situations can complicate your DTI calculation and catch borrowers off guard.
Authorized user accounts typically don't count against your DTI ratio unless you can prove you've been making the payments for 12 months. Being an authorized user on your spouse's credit card won't hurt your ratio, but if you've been making those payments, you'll need documentation.
Home equity lines of credit require special attention. If you have an outstanding balance, lenders include a payment equal to 1.5% of that balance if no payment appears on your credit report. A $20,000 HELOC balance would add $300 to your monthly debt obligations.
Timeshare loans count as installment debt regardless of how they appear on your credit report. The monthly maintenance fees, however, don't count toward your DTI ratio.
Business debt paid personally can create problems for self-employed borrowers. If your business has been paying a debt that's in your name for less than 12 months, that payment still counts against your personal DTI ratio.
Pending home sales offer relief if you're buying before selling your current home. An executed sales contract allows lenders to exclude your current mortgage payment from the DTI calculation. If the buyer needs financing, you'll need proof their loan has been approved.
Special Rules for Different Loan Types
Manually underwritten loans face stricter DTI limits than those approved through automated underwriting systems. If you're manually underwritten, your DTI ratio cannot exceed 45%, and ratios above 36% require written justification.
Loan Product Advisor (Fannie Mae's automated system) may approve higher ratios based on compensating factors like high credit scores, substantial down payments, or significant liquid assets. The system weighs these factors automatically.
Cash-out refinances and investment properties face tighter restrictions. Except in rare circumstances, these loans shouldn't exceed a 36% DTI ratio. Lenders view these transactions as higher risk since they involve taking cash out or managing rental properties.
Energy-efficient homes may justify higher DTI ratios because lower utility costs improve affordability. You'll need documentation proving the home meets energy efficiency standards.
References
For the official guidelines, see 5401.2: Monthly debt payment-to-income (DTI) ratio in the Fannie Mae Selling Guide.
Mortgage guidelines change. Stay current.
Fannie Mae and Freddie Mac update their rules several times a year. Get notified when changes affect your mortgage eligibility, required documents, or loan terms.
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Original Freddie Mac Guideline Text
This section is effective for Loan Product Advisor
®
submissions and resubmissions on or after February 10, 2026.
This section contains requirements related to:
General requirements
Liabilities included in the monthly debt payment-to-income (DTI) ratio
Liabilities that may be excluded from the monthly DTI ratio
Evaluating debt ratios
The DTI ratio is determined by dividing the total of the Borrower’s monthly housing expense described in
Section 5401.1(a)
plus all monthly payments on the Borrower’s liabilities described in
Section 5401.2(b)
by the Borrower’s stable monthly income and/or qualifying asset amount as described in
Section 5307.1(b)
.
(a)
General requirements
The Borrower’s liabilities must be reflected on the Mortgage application (
Form 65, Uniform Residential Loan Application
) and considered when qualifying the Borrower. Sellers must review the Mortgage application, credit report, Borrower’s paystubs (if provided) and other file documentation for Borrower liabilities.
All of the Borrower’s debts incurred through the Note Date must be considered when qualifying the Borrower.
When the Borrower pays off or pays down an existing debt to qualify for the Mortgage, the Seller must document the source of funds used. The source of funds must meet the asset eligibility and documentation requirements in
Sections 5501.3
and
5501.4
.
(b)
Liabilities included in the monthly DTI ratio
Documentation of all monthly payment amounts for the following liabilities must be included in the Mortgage file, and the monthly payment amount must be included in the DTI ratio:
(see
)
Payments on all installment debts with more than 10 months of payments remaining
, including debts that are in a period of either deferment or forbearance.
Installment debt may be excluded if the information on the credit report or other Mortgage file documentation verifies that there are 10 or fewer months of payments remaining.
Student loans
For student loans, the Seller must comply with the requirements in the table below.
Requirements for student loans
Student loans in deferment, forbearance or repayment, including income-driven repayment plans
Student loan forgiveness, cancelation, discharge and employment-contingent repayment programs
In all cases,
an amount greater than zero must be included
in the monthly DTI ratio for all student loans, as described below:
If the current monthly payment amount reported on the credit report is greater than zero, the Seller must use the amount reported on the credit report, unless other documentation in the Mortgage file supports a different current payment amount greater than zero, or
If the current monthly payment amount reported on the credit report is zero, the Seller must use 0.5% of the outstanding loan balance, as reported on the credit report, unless other documentation in the Mortgage file supports a different current payment amount greater than zero
For student loans in
income-driven repayment plans
when documentation in the Mortgage file indicates that prior to or on the first Mortgage payment Due Date the Borrower must recertify their income and/or that the Borrower’s payment will increase the Seller may not use the monthly payment amount described above in calculating the DTI ratio and must instead use:
The greater of the current payment amount or 0.5% of the outstanding loan balance, or
The documented future payment amount if greater than the current payment amount, or
The future payment amount that is less than or equal to the current payment amount, provided that the Mortgage file contains documentation that the Borrower has recertified their income and the future payment amount has been approved. The future payment amount must be greater than zero.
The student loan
payment may be excluded
from the monthly DTI ratio provided the Mortgage file contains documentation that indicates the Borrower is eligible or approved, as applicable, for the student loan forgiveness, cancelation, discharge or employment-contingent repayment program, and the Seller is not aware of any circumstances that will make the Borrower ineligible in the future.
Evidence of eligibility or approval must come from the student loan program or the employer, as applicable.
Additionally, the Mortgage file documentation must indicate:
There are 10 or fewer monthly payments remaining until the full balance of the student loan is forgiven, canceled, discharged or in the case of an employment-contingent repayment program, paid, or
The monthly payment is deferred or is in forbearance and the full balance of the student loan will be forgiven, canceled, discharged or in the case of an employment-contingent repayment program, paid, at the end of the deferment or forbearance period
Internal Revenue Service (IRS) installment agreements
For IRS installment agreements, the Seller must comply with the requirements in the table below.
Requirements for IRS installment agreements
Approved IRS installment agreements
Installment agreements pending IRS approval
When the Borrower is obligated on an installment agreement
approved by the IRS
for payment of past-due federal taxes, all of the following requirements must be met:
The Seller must obtain and retain in the Mortgage file a copy of the installment agreement approved by the IRS reflecting the payment terms and verifying the monthly payment amount and balance
The monthly payment must be included in the Borrower’s DTI ratio if there are more than 10 months of payments remaining
The Seller must document in the Mortgage file that the Borrower is not past due under the terms of the installment agreement
When the Borrower has applied for an installment agreement with the IRS that is
pending IRS approval
, all of the following requirements must be met:
A copy of the application for the installment agreement reflecting the amount of taxes owed and requested payment terms must be included in the Mortgage file
The greater of the monthly payment amount requested by the Borrower or the amount of taxes owed divided by 72 must be included in the Borrower’s monthly DTI ratio
There must be no indication, and the Seller must have no knowledge, that the IRS has filed a Notice of Federal Tax Lien for the taxes owed by the Borrower.
Timeshare loans
Timeshare loans are considered installment debts, regardless of how they are reported on the Borrower’s credit report. Associated maintenance fees are not required to be included in the monthly DTI ratio.
Other installment debt
For other installment debts not reported on the credit report, or listed as deferred or in forbearance, the Seller must maintain in the Mortgage file documentation verifying the monthly payment amount.
Alimony or maintenance payments with more than 10 months of payments remaining
The monthly payment amount must be documented in the Mortgage file with a copy of the signed court order, legally binding separation agreement and/or final divorce decree or equivalent documentation.
Instead of including these payments in the calculation of the debt, they must be deducted from the Borrower’s stable monthly income, and the reduced stable monthly income must be used to qualify the Borrower.
When entering an alimony obligation in Loan Product Advisor, select “Alimony” under “Income Type” and enter it as a negative number. If the Borrower also receives alimony income, select “Alimony” under “Income Type” and enter the amount received.
Note: If the Mortgage file documentation supports that there are 10 or fewer months of payments remaining, the payment may be omitted from the DTI ratio.
Child support payments with more than 10 months of payments remaining
The monthly payment amount must be documented with a copy of the signed court order, legally binding separation agreement and/or final divorce decree or equivalent documentation.
Note: If the Mortgage file documentation supports that there are 10 or fewer months of payments remaining, the payment may be omitted from the DTI ratio.
Monthly payments on revolving or 30-day accounts
Revolving accounts
If there is no monthly payment reported on the credit report and no documentation in the Mortgage file indicating the monthly payment amount, 5% of the outstanding balance will be considered the required monthly payment.
30-day accounts
For 30-day accounts (i.e., accounts that require the balance to be paid in full monthly), the Seller must include the full amount of the outstanding account balance in the DTI ratio.
Exception: The debt may be excluded if the Borrower has sufficient funds to pay off the outstanding account balance. These funds must be verified, in addition to any funds used to qualify the Borrower for the Mortgage transaction, and the source of funds must be an eligible source as described in
Chapter 5501
.
Authorized user accounts
When a Borrower is not the primary account holder but is an authorized user on a revolving or 30-day account, the monthly payment, as reported on the credit report, must be included in the DTI ratio only if the Seller is required by
Section 5202.1(c)
for Manually Underwritten Mortgages to include in the Mortgage file documentation evidencing that the Borrower has been making the payments on the account for the last 12 months.
Monthly lease payments
regardless of the number of payments remaining
Exception: Payments for solar panels subject to a lease agreement, power purchase agreement (PPA) or similar type of agreement that meet the requirements of
Section 5401.2(c)(vi)
below may be excluded from the DTI ratio.
Monthly payment amounts for properties for which rental income is being considered for qualification purposes
Chapter 5306
for requirements with respect to treatment of debt when using rental income.
Chapter 5304
for requirements with respect to treatment of debt when all rental income and expenses are reported on IRS Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S Corporation.
Monthly payment amounts for other properties
The monthly payment amount must include all of the following:
Principal and interest on the First Lien.
For additional information about qualifying rates for the Mortgage secured by the subject property, refer to
Section 4401.2
for ARM requirements and
Section 4204.3
for temporary subsidy buydown plans.
Taxes
Insurance (e.g., hazard insurance premium and flood insurance premium)
The following additional expenses must be included when applicable:
Leasehold payments
Homeowners association dues (excluding unit utility charges)
Special assessments with more than 10 monthly payments remaining
Maintenance Fees (excluding unit utility charges)
Payment on any secondary financing (including a Home Equity Line of Credit (HELOC).
HELOC payments must be included in the monthly DTI ratio when there is an outstanding balance on the account.
In the absence of a monthly payment on the credit report for the HELOC, and if there’s no documentation in the Mortgage file indicating a monthly payment amount, 1.5% of the outstanding balance will be considered to be the HELOC monthly payment amount.
Section 4204.1
for when documentation of HELOC terms is required and to
Section 5501.3
when HELOC proceeds are used for the transaction.
(c)
Liabilities that may be excluded from the monthly DTI ratio
(i)
Contingent liabilities
A contingent liability may be excluded from the monthly DTI ratio when meeting the requirements in the table below. The documentation used to exclude the liability must meet the age of documentation requirements in
Section 5102.4
.
Requirements for excluding contingent liabilities
Debt type
Eligibility and documentation requirements
Monthly lease payment
Documentation in the Mortgage file must indicate the following:
A party other than the Borrower has been making timely payments for the most recent 12 months (regardless of whether the party is obligated on the debt)
The party making the payments is not an interested party to the subject real estate or Mortgage transaction*
Mortgage payment
Other property-related expenses (e.g., taxes, insurance, homeowners association dues, etc.)
Documentation in the Mortgage file must indicate the following:
A party other than the Borrower has been making timely payments for the most recent 12 months
When a Mortgage payment is being excluded, the party making the Mortgage payments must be obligated on the Note
The party making the payments is not an interested party to the subject real estate or Mortgage transaction*
- For examples of an interested party, see
Section 5501.6
.
Note: The Seller must evaluate the validity of circumstances under which the payments are being made by another party. For example, payments on multiple student loans made by the Borrower’s parent represent a common situation. However, additional investigation and documentation might be necessary when a Borrower’s multiple installment and revolving debts are being paid by the Borrower’s spouse who is not on the subject Mortgage.
(ii)
Assumed Mortgage
A Mortgage may be excluded from the monthly DTI ratio when the Borrower is listed as the Borrower on a Mortgage that has been assumed by another party.
If the Borrower has not been legally released from liability on the assumed Mortgage by the Servicer or owner of the Mortgage, the monthly payment may only be excluded from the monthly DTI ratio when:
The Mortgage file contains documentation of the property transfer, evidencing that the Borrower no longer owns the property, and
The assignee (the party who assumed the Mortgage) has made timely payments for at least the most recent 12 months, as documented by:
A copy of the fully executed Mortgage assumption agreement, and
Evidence of timely payments on the assumed Mortgage for the most recent 12 months as documented on the Borrower’s credit report
(iii)
Current Primary Residence pending sale
If the Borrower’s current Primary Residence is pending sale and the sale will not close before the Note Date of the Mortgage or the Effective Date of Permanent Financing for Construction to Permanent Mortgages and Renovation Mortgages, the monthly payment amount for the property pending sale may be excluded from the monthly DTI ratio if the Mortgage file contains an executed sales contract for the property pending sale.
If the executed sales contract includes a financing contingency, the Mortgage file must also contain evidence that the financing contingency has been cleared or a lender’s commitment to the buyer of the property pending sale.
Employee relocation programs:
For Borrowers being relocated pursuant to an employee relocation program, the monthly payment amount for the property pending sale may be excluded from the monthly DTI ratio if the Mortgage meets the requirements in
Section 4408.1(d)(iii)
for Mortgages made pursuant to employee relocation programs.
(iv)
Assigned debt
A liability on a debt, including a Mortgage, may be excluded from the monthly DTI ratio if the following requirements are met:
The obligation to make the payments has been assigned to another by court order, such as a divorce decree, regardless of whether the Borrower is legally released from liability by the creditor, and
The Seller documents the order (e.g., provides appropriate pages from the separation agreement or divorce decree) in the Mortgage file
(v)
Self-employed Borrower’s debt paid by the Borrower’s business
When a self-employed Borrower is obligated on a debt that has been paid by the Borrower’s business for 12 months or longer, the monthly payment for the debt may be excluded from the monthly DTI ratio if the following requirements are met:
The Mortgage file contains evidence that the debt has been paid timely by the Borrower’s business for no less than the most recent 12 months, and
The tax returns evidence that business expenses associated with the debt (e.g., interest, lease payments, taxes, insurance) have been reported and support that the debt has been paid by the business
(vi)
Payments for solar panels subject to a lease agreement, PPA or similar type of agreement
Lease payments for solar panels may be excluded from the monthly DTI ratio if the lease:
Provides for delivery of a specific amount of energy for an agreed-upon payment during a given period; and
Includes a production guarantee compensating the Borrower on a prorated basis when the energy produced by the solar panels is less than the level required in the lease agreement
Payments for solar panels subject to a PPA or similar type of agreement may be excluded from the monthly DTI ratio if the payment is calculated based only on the generated energy. A copy of the lease agreement, PPA or similar type of agreement, as applicable, must be maintained in the Mortgage file.
(vii)
Payments on installment debts secured by financial assets
Payments on installment debts secured by financial assets, other than cryptocurrencies, in which repayment may be obtained by liquidating the asset may be excluded from the monthly DTI ratio when qualifying the Borrower, regardless of the payment amount or number of payments remaining.
The loan secured by the financial asset must have been made by a financial institution. The Seller may consider only the portion of the funds that exceeds the loan balance as funds used to qualify the Borrower for the Mortgage transaction. See
Chapter 5501
for more information.
(d)
(i)
Mortgages underwritten with Loan Product Advisor
Loan Product Advisor calculates and assesses the Borrower’s qualifying ratios based on submitted data.
For Accept Mortgages, Loan Product Advisor has determined that the Borrower’s qualifying ratios are acceptable.
(ii)
Manually Underwritten Mortgages
For Manually Underwritten Mortgages, the Seller must evaluate the Borrower’s ability to pay the monthly housing expense and other obligations.
If the Borrower’s monthly DTI ratio exceeds 45%, the Mortgage is ineligible for sale to Freddie Mac.
As a guideline, the monthly DTI ratio should not be greater than 36%.
When the Borrower’s monthly DTI ratio exceeds 36%, the Seller must document in the Mortgage file justification for the higher qualifying ratio.
Except in rare circumstances, the Borrower’s DTI ratio should not exceed 36% for the following Mortgages:
Cash-out refinance Mortgages
Mortgages secured by 2- to 4-unit properties
Mortgages where there is evidence that the Borrower increases debt and then periodically uses refinance or debt consolidation loans to reduce payments to a manageable level
The following factors may be considered in justifying a DTI ratio that exceeds 36% but is not greater than 45%:
Energy-efficient property: The Mortgage is secured by an energy-efficient property, as described in
Section 5401.1(e)
Increased earnings probability: The Borrower’s probability for increased earnings based on education, job training or time employed or practiced in a profession
Rent paid by Related Person: Documented rent paid by Related Persons living in the property
Ability to carry higher expenses: The Borrower demonstrated ability to carry a higher housing expense or higher debt level while maintaining a good credit history for at least 12 months
Expectation of decreased expenses: The existence of verified income that is not included within the definition of “stable monthly income” in
Section 5301.1
when there is an expectation that future expenses will be lower (such as child-support income scheduled to cease in one year when a child becomes an adult with the expectation of either lower future household expenses or additional income provided by the new adult)
In addition, the examples listed below may be used to justify higher qualifying ratios for Non-Loan Product Advisor Mortgages. However, they may not be used to justify higher qualifying ratios for Caution Mortgages because they have already been considered by Loan Product Advisor.
The Borrower’s verified liquid assets are substantial enough to evidence an ability to repay the Mortgage regardless of income
There is a Down Payment on the purchase of the property of at least 25%
The Borrower has a strong Credit Score (for example, a 740 or higher FICO
®
score), and the Seller can confirm that the Borrower’s credit reputation is excellent
For any Manually Underwritten Mortgage for which either of the ratio guidelines is exceeded, the Seller must prepare and retain in the Mortgage file a written explanation justifying its underwriting decision.
Section 5103.1
for special ratio requirements when a non-occupying Borrower is present.
Section 4302.5
for maximum DTI ratio requirements for Refi Possible
®
Mortgages.
