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What Is Considered Debt When Applying For A Mortgage?

Dan Rafter5-minute read

August 31, 2022

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When you apply for a mortgage, your lender will pull your three credit reports, one each from the national credit bureaus of Experian™, Equifax® and TransUnion®. These reports will list your outstanding loan and credit card balances.

The debts listed on these reports are the ones that your lender will consider when determining whether you can afford to repay a mortgage. Your lender will consider these debts when calculating, too, how big of a mortgage loan, and how large of a monthly payment, you can comfortably afford.

What debts show up on your credit reports? Most of the big ones.

Mortgage Payments

Your mortgage payments – whether for a primary mortgage or a home equity loan or other kind of second mortgage – typically rank as the biggest monthly debts for most people. If you are applying for a new loan, your mortgage lender will include your estimated monthly mortgage payment in its calculation of your monthly debts.

Loan Payments

Mortgage lenders also consider any other recurring loan payment as part of your monthly debt. This includes the payments you make each month on auto loans, student loans, home equity loans and personal loans. Basically, any loan that requires you to make a monthly payment is considered part of your debt when you are applying for a mortgage.

Credit Card Payments

Lenders look at your credit card debt, too. They will use the total minimum required payments that you must make each month on your credit cards to determine your monthly credit card debt. For example, if you have three credit cards, one with a required minimum monthly payment of $100, another with a minimum required payment of $50 and a third that requires you to pay a minimum of $45 each month, your lender will consider your monthly credit card debt to be $195, the sum of those minimum monthly payments.

Alimony And Child Support Payments

If you are divorced, you might make monthly alimony or child support payments. Lenders also consider these payments as part of your monthly debt because you must make them each month, even after you add a mortgage loan payment to your expenses.

Calculating Your Debt-To-Income Ratio

Lenders will use your monthly debt totals when calculating your debt-to-income (DTI) ratio, a key figure that determines not only whether you qualify for a mortgage but how large that loan can be.

This ratio measures how much of your gross monthly income is eaten up by your monthly debts. Most mortgage lenders want your monthly debts to equal no more than 43% of your gross monthly income.

To calculate your debt-to-income ratio, first determine your gross monthly income. This is your monthly income before taxes are taken out. It can include your salary, disability payments, Social Security payments, alimony payments and other payments that come in each month.

Then determine your monthly debts, including your estimated new mortgage payment. Divide these debts into your gross monthly income to calculate your DTI.

Here’s an example: Say your gross monthly income is $7,000. Say you also have $1,000 in monthly debts, made up mostly of required credit card payments, a personal loan payment and an auto loan payment. You are applying for a mortgage that will come with an estimated monthly payment of $2,000. This means that lenders will consider your monthly debts to equal $3,000.

Divide that $3,000 into $7,000, and you come up with a DTI just slightly more than 42%.

You can lower your DTI by either increasing your gross monthly income or paying down your debts. 

How Can Your Debt Affect Getting A Mortgage?

If your DTI ratio is too high, lenders might hesitate to provide you with a mortgage loan. They’ll worry that you won’t have enough income to pay monthly on your debts, boosting the odds that you’ll fall behind on your mortgage payments.

A high DTI also means that if you do quality for one of the many types of mortgages available, you’ll qualify for a lower loan amount. Again, this is because lenders don’t want to overburden you with too much debt.

If your DTI ratio is low, though, you’ll increase your chances of qualifying for a variety of loan types. The lower your DTI ratio, the better your chances of landing the best possible mortgage.

This includes:

  • Conventional loans: Loans originated by private mortgage lenders. You might be able to qualify for a conventional loan that requires a down payment of just 3% of your home’s final purchase price. If you want the lowest possible interest rate, you’ll need a strong credit score, usually 740 or higher.
  • FHA loans: These loans are insured by the Federal Housing Administration. If your FICO® credit score is at least 580, you’ll need a down payment of just 3.5% of your home’s final purchase price when you take out an FHA loan.
  • VA loans: These loans, insured by the U.S. Department of Veterans Affairs, are available to members or veterans of the U.S. Military or to their widowed spouses who have not remarried. These loans require no down payments at all.
  • USDA loans: These loans, insured by the U.S. Department of Agriculture, also require no down payment. USDA loans are not available to all buyers, though. You’ll need to buy a home in a part of the country that the USDA considers rural. Rocket Mortgage® does not offer USDA loans.
  • Jumbo loans: A jumbo loan, as its name suggests, is a big one, one for an amount too high to be guaranteed by Fannie Mae or Freddie Mac. In most parts of the country in 2022, you'll need to apply for a jumbo loan if you are borrowing more than $647,200. In high-cost areas of the country -- such as Los Angeles and New York City -- you'll need a jumbo loan if you are borrowing more than $970,800. You'll need a strong FICO® credit score to qualify for one of these loans.

FAQs About Debt When Buying A Home

What do you need to know about debt when you’re ready to buy a house? Here are some common questions.

How much debt can I have and still get a mortgage?

This varies by lenders. But most prefer that your monthly debts, including your estimated new monthly mortgage payment, not equal more than 43% of your gross monthly income, your income before your taxes are taken out.

What is not included in my debt-to-income ratio?

Your debt-to-income ratio does not factor in your monthly rent payments, any medical debt that you might owe, your cable bill, your cell phone bill, utilities, car insurance or health insurance.

What debt is included in my debt-to-income ratio?

Your debt-to-income ratio will include your credit card debt, auto loans, student loans, personal loans and mortgage loans.

The Bottom Line

Your debt-to-income ratio is a key number when you are applying for a mortgage loan. To qualify for the best loan with the lowest interest rate, pay off your debts or increase your income to lower this ratio. The lower your DTI ratio, the higher your odds of qualifying for the best mortgage. If you’re ready to make the move to owning a home, you can start the approval process with Rocket Mortgage.

Get approved to buy a home.

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Dan Rafter

Dan Rafter has been writing about personal finance for more than 15 years. He's written for publications ranging from the Chicago Tribune and Washington Post to Wise Bread, RocketMortgage.com and RocketHQ.com.