The majority of Americans have some kind of debt, such as credit card balances, student loans or auto payments. Being in debt doesn’t have to stop you from getting a mortgage, but it could impact how much you can borrow.
In fact, your approval and loan terms are impacted by several factors, including the types of debt you have, how much you want to add with a mortgage and how much of your income the total payments take up. Here’s a closer look at what counts as debt when you apply for a mortgage and the effect it has on your ability to borrow.
Key Takeaways:
- Lenders use your debt-to-income ratio (DTI) to measure your ability to afford a home loan.
- You can calculate your DTI by adding up your monthly debt payments and dividing the amount by your gross monthly income.
- Front-end DTI and back-end DTI take into account different types of debts.
What Is A Debt-To-Income Ratio?
A debt-to-income ratio (DTI) compares your monthly debt payments to your gross income, which is what you earn before taxes are taken out. Lenders use your DTI to determine whether you have enough income to afford the mortgage payment after accounting for your loan amount, interest rate and down payment.
There are two DTI calculations lenders consider, depending on the type of loan you’re applying for: a front-end DTI and a back-end DTI.
Calculating Your Front-End DTI
A front-end DTI, or housing expense ratio, compares how much of your income you’ll spend on housing each month. As they are most commonly used for FHA loans, relevant expenses could include:
- Monthly mortgage payments
- Property taxes
- Homeowners insurance
- Homeowners association (HOA) fees
Here’s the formula to calculate your front-end DTI:
Front-end DTI = (Monthly housing expenses / Gross monthly income) x 100
Calculating Your Back-End DTI
Your back-end DTI includes your housing expenses as well as your monthly debt payments, like loan and credit card payments. No matter what kind of mortgage you’re getting, a back-end DTI is calculated.
Back-End DTI = (Total monthly debt expenses / Gross monthly income) x 100
DTI Calculation Example
Let’s see how these formulas work via a quick example.
John Doe has an income of $72,000 per year before taxes – that’s $6,000 per month. Here are his monthly debt payments:
- Mortgage: $1,400
- Auto loan: $400
- Credit card minimum payments: $300
- Personal loan: $600
To find his front-end DTI, we’ll look at housing expenses and monthly income only. This gives us a front-end DTI of 23%.
($1,400 / $6,000) x 100 = 23%
We use the same formula with all of his monthly debt payments to get a back-end DTI of 45%.
($2,700 / $6,000) x 100 = 45%
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What Is Considered Monthly Debt When Buying A Home?
Not every bill you pay counts as debt. Typically, DTI only includes loans and credit accounts. The easiest way to think about this is that if it shows up on your credit report, it can be included in your DTI.
Here’s a list of bills that count as debt when calculating your DTI:
- Projected payment on the mortgage you’re applying for
- Property tax payment (prorated on a monthly basis)
- Homeowners insurance premium
- HOA fees
- Home equity loan or home equity line of credit payments
- Credit card payments
- Auto loans
- Student loans
- Personal loans
- Child support
- Spousal alimony
It’s worth noting that as of July 2025, medical debt can be included on credit reports and consequently impact your mortgage application. The Consumer Financial Protection Bureau had created a rule against this inclusion, but a federal judge recently overruled this decision. Some states, however, have implemented restrictions on how medical debt can be reported. If you’re house hunting in the future and have medical debt, it’s worth investigating what the courts have ruled.
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What Debts Are Not Included In DTI?
You don’t have to worry about the following expenses being included in your DTI calculation:
- Utilities
- Groceries
- Car insurance
- Health insurance premiums and medical expenses
- Savings account contributions
- Retirement account contributions
- Cell phone bill
- Cable bill
- Entertainment
But even though certain bills don’t show up on your credit report and aren’t included in your DTI, it’s still important to stay current on these accounts. They may show up on your credit report and hurt your score if you have a late payment or the account goes to collections.
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Special Considerations For Your DTI Calculation
If you’re getting a mortgage, your DTI calculation will use the actual monthly payment amount for certain types of debt, such as:
- Mortgage payment
- Auto loans
- Personal loans
However, some student loans, alimony and child support have particular guidelines when it comes to DTI calculation. Here’s how treatment differs based on home loans with special rules.
| Mortgage Type | Student Loans in Deferment or Forbearance | Alimony and Child Support |
|---|---|---|
| Fannie Mae Conventional Loan | Lenders use either the monthly payment or an amount equal to 1% of the outstanding loan balance in calculating your DTI. | Lenders use these payments either as a monthly debt payment or as a deduction from your monthly income – whichever is more favorable. |
| Freddie Mac Conventional Loan | Lenders use an amount equal to 0.5% of the loan balance. | The monthly payment amount must be subtracted from your income. |
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What’s Considered A Good DTI?
While lenders also review other qualifications beyond your DTI, here’s what to expect from each loan type in terms of maximum debt levels.
Conventional Loan DTI
If you’re applying for a conventional loan through Fannie Mae’s automated underwriting system, you can have a back-end DTI as high as 50%. (Freddie Mac’s Loan Product Advisor has its own criteria, not a specific maximum.) As you get closer to the higher end of that ratio range, it’ll sometimes be easier to qualify if you have a lower housing expense ratio or front-end DTI.
If your loan is manually underwritten, DTI limits range from 36% – 45% if credit requirements are met.
FHA Loan DTI
An FHA loan is a mortgage issued by a private lender and insured by the Federal Housing Administration. They come with lower credit score requirements than conventional loans. Most FHA loans look at both your front-end and back-end DTI:
- Total DTI maximum: 43%
- Housing DTI maximum: 31%
VA Loan DTI
A VA loan is issued by a private lender and backed by the U.S. Department of Veterans Affairs. They’re available only to eligible military service members, veterans and their surviving spouses. You typically must have a DTI of less than 41% to buy a home with a VA loan. If you receive tax-free income, your lender can increase (or “gross up”) your stated income to reflect what your gross income would look like if it were taxable.
Jumbo Loan DTI
A jumbo loan is a mortgage that exceeds conforming loan limits. For 2025, that limit is $806,500 in most areas and $1,209,750 in high-cost areas. Many lenders require that your DTI not exceed 45% to qualify for a jumbo loan.
What Do You Qualify For With Your DTI?
Your DTI is used to help you qualify for several different financial moves, such as:
- Purchasing a home
- Refinancing your home
- Tapping into equity
How To Lower Your DTI
Want to reduce your DTI? Here are some strategies to consider:
- Increase your income by getting a raise or starting side hustle (self-employment usually requires two years of income).
- Pay off credit card debt.
- Increase the amount you pay toward your debts.
- Avoid taking on new debt.
- Add a co-signer to your mortgage.
FAQ
Here are answers to some frequently asked questions about debt and getting a mortgage.
The Bottom Line On Applying For A Mortgage With Debt
Mortgage lenders look at your existing debt and DTI when determining your eligibility for a home loan, so it’s important to understand how debt is factored into your mortgage. If your DTI is higher than you’d like, consider taking steps to lower it before you start seriously house hunting.
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Lauren Ward
Lauren Ward is a writer with over a decade of experience covering financial topics for businesses and publications. Her work has also been featured in major publications such as U.S. News and World Report, CNN, Business Insider, The New York Post and Bankrate. Her expertise includes real estate, mortgages, small business, insurance and more.
