Specific Debt Types That Must be Included in the Calculation of Total Monthly Obligations

When determining your Total Monthly Obligations, lenders must include the projected monthly housing expense for the property you are purchasing or refinancing. This aggregate expense, often referred to as PITIA, encompasses several distinct charges. It includes the principal and interest portion of the loan payment, real estate taxes, and premiums for both hazard and flood insurance. Additionally, if the property is part of a homeowners’ association (HOA) or a co-op project, you must include HOA dues or co-op corporation fees. Any special assessments, ground rent, or subordinate financing payments secured by the property are also part of this mandatory calculation.

Garnishments mandated by a court order must be included in the borrower’s recurring monthly debt obligations if they have more than ten months remaining. Because these payments are involuntarily deducted to satisfy a debt, they directly reduce the borrower’s disposable income available for mortgage payments. Unlike voluntary deductions for items like retirement savings, garnishments represent a legal liability. The lender must determine the remaining term of the garnishment to decide if it falls under the ten-month threshold; if it will persist beyond that period, the monthly cost is added to the DTI calculation.

Revolving charge accounts and unsecured lines of credit are treated as long-term debts and must be included in the recurring monthly debt obligations. Lenders typically look at the required minimum monthly payment reported on your credit report. If the credit report does not specify a minimum payment amount, the lender is required to impute a payment. Generally, if no payment is listed, the lender must use 5% of the outstanding balance as the monthly obligation. For Desktop Underwriter (DU) loan casefiles specifically, if no payment is listed, the system calculates the payment as the greater of $10 or 5% of the balance.

Bridge loans, often used to bridge the gap between purchasing a new home and selling a current one, create a contingent liability that must typically be included in the borrower’s recurring monthly debt obligations. The payments on the bridge loan are factored into the DTI ratio because the borrower is obligated to pay them until the prior property sells. However, this requirement can be waived if the borrower provides a fully executed sales contract for the current residence and confirmation that all financing contingencies have been cleared, demonstrating that the bridge loan will be satisfied shortly.

Yes, if a borrower has entered into an installment agreement with the IRS to repay delinquent federal taxes, the monthly payment amount is generally included in the monthly debt obligations. This allows the borrower to proceed without paying the full tax debt prior to closing, provided specific conditions are met. These conditions include verifying that no Notice of Federal Tax Lien has been filed against the subject property. If the lender cannot document an approved installment agreement and a history of current payments, the full outstanding tax debt might need to be paid in full at or prior to closing.

Alimony, child support, or separate maintenance payments must be included in the Total Monthly Obligations if the borrower is legally required to make them and the obligation will continue for more than ten months. The lender must verify the terms using a divorce decree, separation agreement, or other legal documents. While lenders generally count these as a debt liability, they also have the option to treat alimony (but not child support) as a reduction of the borrower’s qualifying income rather than as a monthly debt, which can sometimes favorably impact the Debt-to-Income (DTI) ratio depending on the specific math of the file.

If the mortgage transaction involves a property that also has a Home Equity Line of Credit (HELOC), the monthly payment on that HELOC must be considered part of the borrower’s recurring monthly debt obligations. This applies whether the required payment covers principal and interest or is an interest-only payment. If the HELOC has an outstanding balance, the lender uses the payment amount indicated. However, if the HELOC has a zero balance and does not require a payment, the lender is not required to develop or impute an equivalent payment amount for the calculation of the debt-to-income ratio.

Yes, lease payments, such as those for automobiles, must be included in the Total Monthly Obligations regardless of the number of months remaining on the lease term. This differs from the rule for standard installment debts because the expiration of a lease usually necessitates a replacement transaction. Lenders assume that when a lease expires, the borrower will likely enter into a new lease agreement, buy out the existing lease, or purchase a new vehicle, thereby continuing the monthly financial obligation. Consequently, the current lease payment is counted to accurately reflect the borrower’s ongoing long-term liabilities.

Generally, installment debts such as auto loans, personal loans, or timeshares are included in your Total Monthly Obligations if they have more than 10 monthly payments remaining. However, the “10-month rule” is not absolute. An installment debt with 10 or fewer payments remaining must still be included if the lender determines that the monthly payment amount significantly impacts your ability to meet other credit obligations. This ensures that a large short-term payment does not compromise your financial stability during the early months of the mortgage. Furthermore, installment debts secured by virtual currency are always included, regardless of the remaining term.

Student loans are considered long-term debt and must be included in the total monthly obligations, even if payments are currently deferred or in forbearance. Lenders cannot simply use a $0 payment unless specific documentation confirms a $0 payment under an income-driven repayment plan. If the credit report shows a $0 payment or no payment amount due to deferment, the lender must calculate a qualifying payment. This is typically done by either calculating 1% of the outstanding loan balance or using a fully amortizing payment based on the documented loan repayment terms found in the student loan agreement.