DTI & Income Verification - Debt Exclusions

Installment Debt

• Installment Debt: A monthly obligation with fixed payments and terms.
  • Payments with ten (10) or fewer monthly payments remaining are automatically excluded from the borrower's total debts.
  • Installment debt paid down prior to closing can be excluded from the debt-to-income ratio. A payoff statement from the lender confirming that payoff is required.

Revolving Debt

• Revolving Debt: Open-ended debt in which the principal balance may vary from month to month.
  • Revolving accounts are allowed to be paid at closing to exclude the payment from the debt-to-income ratio.
  • Revolving debts may be excluded prior to closing at our discretion. If the borrower is unable to provide sufficient documentation showing zero balance and proof of payment, the debts will not be excluded and must be paid in full at closing.
  • Borrowers are not required to close accounts to pay down revolving debts.

Debt Paid by Others

If a debt is reflected on the borrower’s credit report, the borrower is personally liable for the debt and it must be included in the debt-to-income ratio. Debts paid by the borrower’s business or by someone else can be excluded from the debt-to-income ratio with any of the following supporting documentation:

• Most recent six (6) months’ canceled checks drawn on the business account;
• Tax returns reflecting the business expense deduction; or
• Business bank account statement showing assets remain after funds to close and reserve
• requirements are with a balance greater than or equal to the balance of the debt; or
• Evidence that the debt is paid by someone else for more than six (6) months; or
• If debt is newly issued there must be a minimum of four (4) payments; and
• If there are any inconsistent payments, then a LOE and supporting documents will be required.
• Note: For mortgage debt paid by others, twelve (12) months canceled checks drawn and history of evidence is required.

Student Loans

• If the Borrower is on an income-driven payment plan, student loan documentation may be obtained to verify the actual monthly payment is $0. The borrower may then qualify with a $0 payment.
• Deferred or forbearance-status student loans are NOT EXCLUDED. Instead, a calculated payment amount is used to account for a portion of the debt in the borrower’s qualifying ratios. The calculation is as follows:
  • A payment equal to 1% of the outstanding student loan balance (even if this amount is lower than the actual fully amortizing payment); or
  • Fully amortizing payment using the documented loan repayment terms.