Fannie Mae will let a lender leave a cosigned debt out of your debt-to-income ratio if someone else has made every payment on that account, on time, for the past 12 consecutive months. Excluding a cosigned debt from your DTI is a qualifying tool, not a release from the loan: your name stays on the note, but the monthly payment stops counting against you when the lender runs the numbers. The rules for pulling this off are strict, and they change depending on whether the debt is a mortgage, a car loan, a court-assigned obligation, or a business loan on your personal credit.
Who Can Make the Payments
For most non-mortgage debts, the person covering the bill does not have to be a co-borrower or cosigner on the account. Fannie Mae’s policy applies “whether or not the other party is obligated on the debt.”1Fannie Mae Selling Guide. Monthly Debt Obligations So if a partner has been paying a credit card that sits only in your name, or your adult child has taken over a car loan you cosigned, the exclusion is on the table.
The Selling Guide names installment loans, student loans, revolving accounts, lease payments, alimony, child support, and separate maintenance as qualifying non-mortgage debt types.1Fannie Mae Selling Guide. Monthly Debt Obligations The one restriction on who can pay: it cannot be an interested party to your transaction, meaning the seller, real estate agent, or anyone with a financial stake in your loan closing.
Extra Rules When the Debt Is a Mortgage
You can also exclude a mortgage you’re obligated on but not paying, and the exclusion covers the full housing expense: principal, interest, taxes, insurance, and any association dues. Fannie Mae imposes three conditions that all have to be true:
- The other party must actually be a named borrower on the mortgage. This is stricter than the non-mortgage rule, where a friend or partner off the note can qualify.
- There can be no delinquencies on the loan in the last 12 months.
- You cannot use rental income from that property to qualify. If the rent is helping your application, the mortgage payment stays in your DTI.1Fannie Mae Selling Guide. Monthly Debt Obligations
Divorce Decrees Work Differently
A court-ordered debt assignment takes a separate path. If a divorce decree or separation agreement makes your ex-spouse responsible for a debt, the lender can exclude it as a contingent liability without any 12-month payment history and without the creditor releasing you from the original note.1Fannie Mae Selling Guide. Monthly Debt Obligations
The court order does not, however, erase what happened before it. If you were late on the account during the marriage, that history stays on your credit report and can still affect the underwriting decision. The order shields the ongoing monthly payment, not the past.
Documentation You Will Need
The core proof is 12 months of canceled checks or bank statements from the person making the payments, showing a complete on-time payment history.1Fannie Mae Selling Guide. Monthly Debt Obligations Each record needs to show the payer’s name, an amount matching the required monthly installment, and the transaction date.
The Selling Guide requires this evidence to come “from the other party making the payments.” Most lenders read that as meaning the money should come from an account belonging to that person alone. Joint accounts are not explicitly forbidden, but they invite questions from a cautious underwriter about whether you are really uninvolved. Pulling the documentation from a separate account avoids the gray area.
Expect the lender to also ask for a liability exclusion form tying the bank statements to the specific tradeline on your credit report. That form usually needs the account number, the payer’s name, and dates that line up with the bank records. Small mismatches between the statement dates and the credit report’s due dates slow things down, so it helps to get the other party’s records organized before applying.
How the Underwriter Verifies It
The underwriter cross-references your bank statement evidence against the payment history on your credit report. They confirm that each of the 12 payments landed on time and that amounts match the required installment. One 30-day late payment inside that window kills the exclusion. Late payments older than 12 months do not disqualify you.1Fannie Mae Selling Guide. Monthly Debt Obligations
Once the payment source is verified, the lender removes the obligation from your DTI. The effect can be substantial. A $500 monthly car payment on $6,000 of monthly income moves your ratio by more than eight percentage points. Fannie Mae caps DTI at 36% for manual underwriting (up to 45% with strong credit and reserves) and at 50% for loans run through Desktop Underwriter.2Fannie Mae Selling Guide. Debt-to-Income Ratios A successful exclusion can drop a borderline ratio under those thresholds.
Business Debt Paid by Your Company
Self-employed borrowers sometimes carry business obligations, like an SBA loan, on their personal credit reports. Fannie Mae allows the exclusion if the business has been paying, but the conditions are tighter than the 12-month cosigned-debt path. The account cannot have any history of delinquency, not just a clean 12 months but ever. The business must provide evidence such as 12 months of canceled company checks. And the lender’s cash flow analysis of the business has to already account for the payment.1Fannie Mae Selling Guide. Monthly Debt Obligations
That last piece trips people up. If your business tax returns don’t show interest expense matching the loan, the underwriter concludes the business isn’t really covering it, and the debt goes back into your DTI. When the exclusion does apply, the lender adjusts the business’s net income by the interest, taxes, or insurance tied to that obligation, so nothing gets double-counted.1Fannie Mae Selling Guide. Monthly Debt Obligations
You Are Still Legally on the Hook
The exclusion is a qualifying calculation. It does not release you from the underlying debt. If the other party stops paying, the creditor will come after you for the balance and the missed payments will land on your credit report. This matters most with mortgage exclusions, where the monthly amount is large. Before leaning on this rule to get your DTI under a threshold, be honest about whether you could absorb the cosigned payment if the arrangement fell apart.
FHA Loans Follow a Similar Rule
If you are applying for an FHA loan instead of a conventional Fannie Mae loan, a comparable exclusion exists. FHA treats a cosigned loan as a contingent liability that can be left out of your DTI when the co-obligor has made the last 12 consecutive monthly payments, the account is current, and there has been no delinquency during that window. Acceptable evidence includes canceled checks or documentation of automatic payment withdrawals. The idea is the same: show someone else has reliably handled the debt, and the payment stops counting against you.