What the Guide Lets You Leave Out of DTI

The ratio that decides your loan is not the one you would compute from your own balance sheet. Fannie’s Selling Guide B3-6-05 enumerates the obligations an underwriter may leave out, and for a reader of this book those exclusions move the approval more than any rate negotiation will. Every one of them is a documentation exercise. Assemble the paperwork before the file goes in; no underwriter goes looking for a reason to help you.

Debt secured by a financial asset

A loan collateralized by a brokerage account, a certificate of deposit, a life insurance policy, or a retirement account is a contingent liability, and the guide says the lender is not required to count the payment — installment debt enters the ratio only when it is “not secured by a financial asset.” Hand over the loan instrument showing the pledge. This is what makes the SBLOC of section “Asset Backed Loans (ABL)” and the 401(k) loan of section “Borrowing from Your 401(k)” nearly invisible in underwriting: you carry the debt, your DTI does not. Two conditions bind. If the same account is doing duty as your reserves, its value is cut by the loan proceeds — you cannot spend those dollars twice. And debt secured by virtual currency is the one named exception, which counts in full.

Debt somebody else actually pays

Twelve months of canceled checks or bank statements from the party making the payments removes a non-mortgage debt outright: installment loans, student loans, revolving accounts, leases, alimony, child support. An entire mortgage housing payment can go the same way — principal, interest, taxes, insurance, and association dues — provided the person paying is also obligated on the note, there is no delinquency in those twelve months, and you are not using rental income from that property to qualify. The property still counts against your financed-property limit. This is the clean exit from a note you co-signed for a child or a sibling: let them make twelve months of payments on time, collect the statements, and buy your own house as though the signature never happened. It does not work when the other party is the seller or the agent on your purchase.

Business debt carried in your own name

Self-employed borrowers routinely sign personally for company obligations. Twelve months of canceled company checks, no history of delinquency, and a cash-flow analysis that already reflects the expense, and the payment comes out.

Open 30-day charge accounts

A card that must be paid in full every month is not counted in the ratio — the guide is explicit. It is not free, though: B3-6-07 makes the lender verify funds to cover the full balance, on top of closing costs and reserves, so a $40,000 Amex statement consumes $40,000 of the assets you were counting for something else. The classic charge card is free of DTI consequence in a way the revolving card beside it is not; it is not free of asset consequence.

Installment debt inside ten payments

Anything with ten or fewer monthly payments remaining drops out, unless the payment is large enough to threaten your ability to close. Paying a car loan down to ten remaining payments buys you the entire exclusion; paying it off buys you nothing more.

A bridge loan against a house already in contract

The swing loan funding your next down payment stays out of the ratio if you produce a fully executed sales contract on the departing residence with all financing contingencies cleared.

An undrawn HELOC

A line that requires no payment creates no obligation to count. The available credit is not the problem; the required payment is.

None of this is a favor, and none of it is aggressive. Each item is written policy that an underwriter applies when — and only when — the document is in the file.