When you apply for a mortgage, your lender sorts your monthly bills into two piles. One pile counts against you; the other does not. What is considered monthly debt when buying a home is any recurring payment tied to borrowed money or a court order: your current mortgage or rent, car loans, student loans, credit card minimums, personal loans, co-signed loans, child support, alimony, and installment agreements with the IRS. Everyday living expenses — utilities, groceries, insurance premiums, cell phone bills — do not count, even though they come out of the same paycheck.
The reason this sorting matters is a single number: your debt-to-income ratio, or DTI. Lenders add up the payments in the “debt” pile and divide by your gross monthly income. Fannie Mae, for example, allows a back-end DTI of up to 50 percent for loans run through its automated underwriting system and up to 45 percent for manually underwritten loans when the borrower has strong credit and cash reserves.1Fannie Mae. Debt-to-Income Ratios Push past a lender’s comfort zone and you’ll see a higher rate, tighter conditions, or a denial. Federal rules under 12 CFR § 1026.43 also require mortgage lenders to verify your ability to repay, and your existing debts sit at the center of that analysis.2eCFR. 12 CFR 1026.43 – Minimum Standards for Transactions Secured by a Dwelling So what ends up in the debt pile has real consequences for how much house you can buy.
Installment Loans
Installment loans are the clearest category. You borrowed a set amount, you repay it on a fixed schedule, and your lender knows exactly what the payment is.
- Mortgage payments, including principal, interest, property taxes, and homeowner’s insurance (often grouped as PITI).
- Auto loans, counted at the full monthly payment.
- Personal loans from a bank, credit union, or online lender.
Two details are worth knowing. First, if an installment debt has fewer than ten months of payments left, it can sometimes be excluded from DTI when the payments don’t materially affect your ability to carry the new loan. Second, auto leases do not get that break. Lease payments must be included regardless of how many months remain.1Fannie Mae. Debt-to-Income Ratios
Student Loans Count Even if You Aren’t Paying
Student loans count as monthly debt even when your actual payment is zero. If your loans are in deferment, forbearance, or an income-driven plan with a $0 payment, the lender estimates what you’ll owe anyway. The method depends on the loan program.
For conventional loans backed by Fannie Mae, the lender uses either 1 percent of the outstanding student loan balance or the fully amortizing payment based on the loan’s documented terms — whichever the lender selects.3Fannie Mae. Monthly Debt Obligations For FHA loans, the rule differs: the lender uses the payment amount shown on your credit report when it’s above zero, or 0.5 percent of the outstanding balance when the credit report shows a $0 payment.4Department of Housing and Urban Development (HUD). Mortgagee Letter 2021-13 Student Loan Payment Calculation of Monthly Obligation
On $50,000 of student debt, that’s a $500 phantom payment under conventional rules and $250 under FHA. Either way, it reduces how much mortgage you qualify for, so ask your lender which calculation applies before you shop.
Credit Cards and Other Revolving Accounts
Revolving accounts like credit cards and home equity lines of credit work differently. The balance moves up and down, so lenders don’t use the balance itself. They use the minimum monthly payment shown on your credit report or billing statement. If you pay in full every month, the minimum payment is still what feeds into your DTI.
Keeping balances low helps twice: it lowers the minimum payment lenders count, and it improves your credit utilization ratio, a major factor in your credit score.
Authorized User Accounts
If you’re an authorized user on someone else’s credit card rather than the primary account holder, the treatment depends on how the loan is underwritten. For loans run through Fannie Mae’s automated system, the lender checks whether you’ve actually been making payments. If you have, the debt is included. If not, it can be excluded.5Fannie Mae. FAQ: Top Trending Selling FAQs
For manually underwritten loans, the rules are stricter. An authorized user tradeline generally cannot be considered unless you can document that you’ve been the sole payer on the account for at least 12 months, or the account belongs to another borrower on the same mortgage application. If the account owner is your spouse and your spouse is not on the mortgage, the payment must be included in your DTI.6Fannie Mae. Authorized Users of Credit
Court-Ordered Payments
Child support, alimony, and other court-ordered payments count as monthly debt and must be disclosed on your loan application. The ordered amount goes straight into your DTI calculation, same as any fixed installment loan.
When support is being collected through wage garnishment, the lender uses whichever figure is larger: the amount from the most recent court order or the actual monthly garnishment shown on your pay stubs.7FHA Single Family Housing Policy Handbook. Origination through Post-closing/Endorsement Garnishments for ordinary consumer debts, such as defaulted credit cards, are also included at the amount coming out of your paycheck.
Co-Signed Loans
If you co-signed a loan for someone else, the full monthly payment typically counts in your DTI even if the other person has reliably been making every payment. You’re legally responsible for the debt, and lenders treat it that way.
There is one way out. A co-signed debt can be excluded from your DTI if you can prove the other borrower has made all the payments on their own for the past 12 consecutive months. The documentation is specific: 12 months of canceled checks or bank statements from the person actually making the payments, with no late payments during that period.3Fannie Mae. Monthly Debt Obligations Without that paper trail, the full payment stays in your DTI.
Collections, Judgments, and Back Taxes
Outstanding collection accounts and court judgments can complicate a loan application even when they don’t have a fixed monthly payment. For conventional loans underwritten manually through Fannie Mae, non-medical collection accounts don’t necessarily need to be paid off before closing as long as an individual account balance is under $250 or the combined total of all such accounts is $1,000 or less. Balances above those thresholds generally must be resolved before closing.8Fannie Mae. Debts Paid Off At or Prior to Closing For loans processed through automated underwriting, the system may handle collections differently based on the overall risk profile.
If you have an IRS installment agreement for back taxes, the monthly payment counts as a debt obligation. Lenders include the agreed amount the same way they’d include any other installment loan.
What Doesn’t Count: Living Expenses
Most of the bills you pay every month are living expenses, not debts. The dividing line is whether you’re repaying borrowed money or just paying for a service as you use it. The following typically stay out of your DTI:
- Utilities: electric, gas, water, sewer, trash.
- Communications: cell phone, internet, cable, streaming.
- Groceries and household supplies.
- Insurance premiums: health, auto, life, renter’s. Homeowner’s insurance is already inside your mortgage payment.
- Transportation: gas, transit fares, tolls, routine car maintenance.
Lenders assume these are covered by what’s left of your income after debt payments. That’s convenient — a high utility bill or expensive grocery habit won’t hurt your DTI — but it also means DTI doesn’t capture your full picture. You can qualify for a loan that leaves you stretched thin once real life gets paid for.
One boundary to flag: VA home loans treat childcare as a debt obligation. If you’re applying for a VA loan, expect the lender to ask for documentation of your childcare costs and factor them into qualifying.9VA Home Loans. VA Credit Standards Course That treatment is specific to VA loans and isn’t standard across other programs.
Buy Now, Pay Later and Medical Debt
Two categories sit in motion right now.
Buy now, pay later plans from services like Affirm, Klarna, and Afterpay usually 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 don’t exceed 5 percent of your gross monthly income.10Federal Register. Request for Information Regarding Buy Now Pay Later Unsecured Debt FHA published a formal request for input in mid-2025 on whether to change this treatment, so the rules may tighten. Disclose any active buy now, pay later balances to your lender to avoid surprises in underwriting.
Medical debt is in flux too. The three major credit bureaus have voluntarily limited how much medical debt they include on credit reports, and the CFPB attempted to ban medical debt from credit reports outright. A federal court blocked that rule in mid-2025, leaving the picture uncertain. Credit bureaus can still report medical debt, and lenders can still consider it. If medical collections appear on your report, they can affect your application like any other collection account.