How much debt can you have when buying a house?

You don’t have to be debt-free to buy a house, and plenty of home buyers still qualify for a mortgage while paying off student loans, credit cards, auto loans, or carrying other debts.

But it’s not necessarily about how much you owe. The real question is whether your income can comfortably cover both your current payments and the mortgage you’re hoping to take on. To figure that out, lenders use your debt-to-income ratio, or DTI.

Key takeaways:

• Monthly payments matter more than your total debt balance when qualifying for a mortgage.
• A debt-to-income ratio of 36% or lower can put you in a stronger borrowing position, and good credit or savings may give some home buyers more flexibility.
• Paying off the debt with the largest monthly payment may help lower your DTI more than tackling the biggest balance, as long as you preserve enough cash to buy the home.

How much debt can you have and still buy a house?

There’s no set dollar amount of debt that’s considered “too much” to buy a house; instead, lenders look at the amount of debt you’ll have in proportion to your income. A debt-to-income ratio, or DTI, of 36% or lower can put you in a stronger borrowing position, while 45% of your income going toward debt is often considered the max for Fannie Mae-backed loans, if credit score and cash reserve requirements are met. Depending on the loan program and underwriting results, some borrowers may qualify with even higher debt ratios.

You could owe $50,000 and the monthly payments are manageable compared with your income, while someone with $10,000 in debt could have trouble qualifying if the required payments take up a large share of a smaller paycheck.

The maximum a lender allows you to borrow isn’t necessarily the maximum you should spend. Your DTI doesn’t account for every bill in your household budget, so it’s worth looking at what the payment would leave for food, utilities, childcare, savings, and other expenses.

What is a debt-to-income ratio, and why does it matter?

Your debt-to-income ratio is the share of your gross monthly income that goes toward required debt payments. Gross income is what you earn before taxes, insurance, retirement contributions, and other payroll deductions.

Lenders focus on your DTI rather than your total debt balance. They add your expected housing payment to your other required monthly debts, then compare the total with your gross monthly income. Lenders also consider the rest of your application, including your credit history, income stability, down payment, cash reserves, and loan type.

To calculate DTI, add your monthly debts, divide that number by your gross monthly income and multiply by 100.

Monthly debt payments ÷ gross monthly income × 100 = DTI

Think about if your payments look like this:

• Future housing payment: $2,200
• Auto loan: $450
• Student loan: $250
• Credit card minimums: $150

Your total monthly debt is $3,050. If you earn $7,500 a month before taxes, your DTI would be:

$3,050 ÷ $7,500 × 100 = 40.7%

This means about 41% of your gross monthly income would go toward your future housing payment and other required debts.

Lenders may look at two versions of DTI: front-end DTI and back-end DTI. Let’s talk about both.

Front-end DTI

Your front-end DTI, also called your housing expense ratio, looks only at the cost of owning the home.

Depending on the property and loan, the housing payment may include:

• Mortgage principal and interest
• Property taxes
• Homeowners insurance
• Mortgage insurance
• Homeowners association fees
• Payments on secondary financing

For example, if your full housing payment would be $2,000 and you earn $7,500 a month, your front-end DTI would be about 27%.

Back-end DTI

Your back-end DTI includes your housing payment plus other required monthly debts.

That means that same $2,000 housing payment would be added to expenses such as your car loan, student loans and credit card minimums.

When a lender talks about your DTI without specifying which kind, it’s usually referring to this total, or back-end, ratio.

What is considered debt when applying for a mortgage?

Your lender isn’t adding up every dollar you spend in a month. They’re mainly interested in recurring financial obligations you’re required to pay.

Those obligations may appear on your credit report, loan application, bank statements, pay stubs, divorce documents, or other information collected during underwriting.

Housing payments

The lender will calculate the full payment for the home you plan to buy, not just the loan’s principal and interest. Property taxes, homeowners insurance, mortgage insurance, and HOA dues can all affect the amount of debt you’re considered to have.

For a typical primary-home purchase, this future payment generally replaces your current rent in the DTI calculation. Rent or a mortgage on another property will likely count toward your debts if you’ll continue paying it after closing.

Loans and leases

Required payments on auto loans, personal loans, home equity loans, and other recurring debts generally count toward your DTI. Under Fannie Mae guidelines, installment loans usually count when more than 10 monthly payments remain. A loan with 10 or fewer payments left may still count if the payment is large enough to affect your ability to manage your other debts.

Auto lease payments count toward DTI regardless of how many payments remain. That’s because when a lease ends, you’ll usually need to buy the vehicle, start another lease, or figure out another means of transportation.

Student loans

Student loans usually count toward your DTI, but how the payment is calculated depends on the mortgage program. If your payment is deferred, missing from your credit report, or listed as $0, the lender may use a documented payment or calculate one based on your loan balance. Some programs may accept a documented $0 payment, while others require the lender to count an estimated payment.

Credit cards and lines of credit

Credit cards and unsecured personal lines of credit usually count as recurring debts in your DTI. Lenders generally use the required minimum monthly payment on your credit report rather than the full credit card balance.

If no minimum payment is listed, the lender may calculate one using a percentage of the balance. Under Fannie Mae guidelines, for example, a lender uses 5% of the outstanding balance when a lower required payment can’t be documented. .

Child support and alimony

Court-ordered child support, separate maintenance, and similar obligations generally count if the payments will continue for more than 10 months. Under Fannie Mae guidelines, a lender may count alimony or separate maintenance as a monthly debt or subtract it from the income used to qualify you.

Child support or alimony you receive may also be used as qualifying income if you choose to disclose it and it meets the lender’s documentation and continuation requirements.

Collections, medical debt, and charge-offs

Collections don’t always prevent you from getting a mortgage, but the rules vary by loan program and underwriting method . A lender could require you to pay off the debt, set up a payment plan, or count a monthly payment toward your DTI.

Medical collections might also be treated differently from other collections. Judgments and liens often have stricter requirements and need to be resolved before closing.

Mortgage DTI limits by loan type

An acceptable DTI for buying a house depends partly on the type of mortgage you’re applying for.

Loan guidelines also leave room for the rest of your financial picture. Someone with a higher credit score, steady income, and money left in savings may have more options than someone with the same DTI and a thinner application.

Debts and expenses usually excluded from DTI

Life comes with plenty of expenses that don’t appear in the standard DTI calculation.

Common examples that usually aren’t included are :

• Electricity, gas, water and trash service
• Cell phone, internet and cable bills
• Groceries and household supplies
• Gas and commuting expenses
• Car insurance
• Health insurance
• Childcare
• Gym memberships and streaming subscriptions
• Savings contributions
• Voluntary retirement contributions

There’s one important distinction with insurance: homeowners insurance is part of the housing payment, so it generally counts toward your front-end and back-end DTI. Car and health insurance typically don’t.

Leaving these costs out doesn’t mean they’re unimportant. Your lender may approve a loan amount based on your DTI, but you still need enough room left in your budget for utilities, food, transportation, medical care, childcare, savings, and anything else you might need to cover.

That’s one reason your personal housing budget may be lower than the maximum amount you can technically qualify to borrow.

Can you buy a house with credit card debt?

Yes. You can buy a house with credit card debt, and you don’t necessarily need to pay off every card before applying. Credit cards can affect your mortgage application in two main ways.

1. Minimum payments raise your DTI. The more income that goes toward your cards, the less you have available for the mortgage.
2. High credit utilization can affect your credit score. High balances can affect your credit utilization, which compares your credit card balances with your available credit limits. Generally, using a smaller percentage of your available credit is better for your credit scores.

Can you buy a house with $10,000 or $20,000 in credit card debt?

It’s possible; neither $10,000 nor $20,000 in credit card debt automatically prevents you from getting a mortgage.

Let’s look at two borrowers who each owe $20,000:

• One earns $12,000 per month, has a $350 minimum payment and uses a relatively small percentage of their available credit limit.
• The other earns $4,000 per month, has a $600 minimum payment and has nearly maxed out several cards.

Although their balances are the same, the second borrower may have more difficulty qualifying because the payments take up a larger share of their income and their credit utilization is higher.

Instead of focusing only on the balance, look at:

• Your minimum monthly payments
• Your monthly income
• Your total DTI after adding the future housing payment
• Your credit limits and utilization
• Your payment history
• The cash you’ll have left after closing

How can debt affect getting a mortgage?

Having debt doesn’t just influence whether you qualify for a mortgage. It can also affect how much you can borrow and which loans are available.

You could qualify for a smaller mortgage

Every monthly debt payment uses income that could otherwise go toward a housing payment.

For example, a $600 car payment adds $600 to your monthly debt obligations. That could reduce the mortgage payment and home price you qualify for. Depending on rates, taxes, and insurance, that could translate into a significantly lower home buying budget.

You may have fewer loan options

A higher DTI may be accepted by one mortgage program but not another. You might also need stronger credit, more savings, or a larger down payment to offset the additional risk, but the lender could still approve a smaller loan than you requested. That’s why borrowers with similar incomes and debts can receive different results.

New debt can change your approval odds

Mortgage approval isn’t based only on the debts you had when you first applied.

If you finance a car, open a new credit card, or increase your balances before closing, your lender may need to recalculate your DTI. Fannie Mae requires lenders to account for additional liabilities discovered before or at closing.

That’s why buying furniture on credit or taking out a new car loan during the mortgage process could affect your approval, even after you’ve received an initial decision.

Should you pay down debt before buying a house?

Paying down debt could improve your mortgage application, but paying off every balance isn’t always the best use of your available cash.

When paying down debt may help

Paying off or reducing debt could make sense when:

• Your DTI is close to the lender’s maximum
• Credit cards are using a large share of your available limits
• A relatively small payoff would eliminate a large monthly payment
• Your current payments would make the new mortgage uncomfortable
• You’ll still have enough money for the home purchase and emergencies

Paying down credit cards might help lower your minimum payments and credit utilization. But another debt could have a bigger effect on your DTI if paying it off eliminates a larger monthly payment.

When keeping more savings may help

Putting every available dollar toward debt could leave you without enough money to complete the purchase or handle the first unexpected home repair.

You’ll still need money for some combination of:

• Your down payment
• Closing costs
• Prepaid taxes and insurance
• Moving expenses
• Repairs or furniture
• An emergency fund
• Cash reserves required by the lender

Before moving a large amount of money, ask your lender to run the numbers both ways. They can explain how paying off debt would affect your DTI, loan amount, and funds needed at closing.

Other ways to lower your DTI

Paying debt isn’t the only way to improve your ratio. Depending on your situation, you could also:

• Buy a less expensive home
• Make a larger down payment to reduce the mortgage payment
• Choose a property with lower taxes, insurance, or HOA fees
• Document additional qualifying income
• Apply with a qualified co-borrower whose income outweighs the debts
• Avoid taking on new debt before closing
• Wait until an installment loan has fewer payments remaining

In some cases, one of these changes may have a bigger effect than paying off an existing account. Your lender may be able to document that a debt payoff and remove the payment from your DTI before the new balance appears on your credit report.

FAQ

We have the answers to some of the common questions about debt and the home buying process.

How much debt is too much debt to buy a house?

Debt may be too high when your required monthly payments push your DTI beyond what your lender or mortgage program allows. Although a DTI of 36% or lower can put you in a stronger position, but some borrowers can qualify with ratios in the mid-40% range or higher, depending on the loan and overall application.

Can you buy a house with debt in collections?

Possibly. Collections don’t automatically prevent every borrower from qualifying for a mortgage, but the lender will look at the type and amount of the debt and how it needs to be handled under the loan program. Judgments, liens, and certain nonmedical collections may need to be resolved before closing.

Is rent included in your DTI when buying a house?

Usually not if you’re buying a primary home and your current rent will end. The lender will generally use your future housing payment instead, but rent might count toward your DTI if you’re still responsible for it after closing.

Do you need to pay off all your debt before buying a house?

No, you don’t need to be debt-free, but your existing payments must leave enough income for the future mortgage and other homeownership costs. Paying down selected debts may help, but you’ll also need money for your down payment, closing costs and other home buying expenses. The home affordability calculator from Rocket Mortgage can help here, too.

The bottom line: Your monthly debt matters more than the balance alone

There’s no magic debt balance you have to stay under when buying a house. Lenders are more interested in how much of your monthly income is already committed once the future mortgage, taxes, insurance, and other debts are added together, with many lenders looking for a DTI of 36% – 45% or less.

Calculating your DTI gives you a useful starting point for whether you’ll get approved for your desired loan amount. But the maximum a lender approves and the payment you’ll feel comfortable carrying aren’t always the same number. Before paying off debt or changing your home budget, look at how each move would affect your DTI, savings, and monthly cash flow.

When you’re ready, getting approved can give you a clearer picture of the loan amount and payment that may fit your full financial situation.

¹Rocket Mortgage is not acting on behalf of FHA or HUD.

²Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency. 

Rocket Mortgage is a trademark of Rocket Mortgage, LLC or its affiliates.