Quick answer
Lenders divide your monthly debts, including the new housing payment, by qualifying gross income — and qualifying income is often less than what you earn. Overtime and bonuses need at least 12 months of history (2 years recommended) and are averaged; rent from a leased property counts at 75% of the lease minus its costs; and a deferred student loan is charged at 1% of the balance. In the two-earner worksheet below, those rules produce $12,121 of monthly income, $950 of debts plus a $3,480 housing payment, and a 36.5% debt-to-income ratio.
Key facts
12months
Shortest overtime or bonus history (Fannie Mae)
Fannie Mae Selling Guide B3-3.3-02 · Mar 4, 2026
10
Installment debts count with more payments left than
Fannie Mae Selling Guide B3-6-05 · Aug 5, 2026
The formula is simple; the inputs are not
Debt-to-income (DTI) is monthly debts divided by gross monthly income. Our debt-to-income guide covers the limits for each loan type and the basic math. This post is about the two numbers that go into it, because that is where borrowers and lenders most often disagree.
On the income side, a lender counts only what it can document and expects to continue. On the debt side, it adds payments from your credit report using fixed rules — sometimes a payment you don’t actually make. The rules below are Fannie Mae’s, which apply to the many conventional loans sold to it; FHA, VA and USDA have their own versions with the same structure.
Salary and hourly pay
Salaried income is the simplest line: annual salary ÷ 12. A $78,000 salary is $6,500 a month, confirmed with a recent pay stub, W-2s and a verbal check with your employer within 10 business days of closing.
Hourly income is the hourly rate × hours per week × 52 ÷ 12. At $28 an hour and 40 hours a week that is $4,853.33 a month — not $4,480, which is what you get from multiplying a week by four. If your hours vary, expect the lender to average them over your recent history rather than use your best weeks.
Income with an end date — a contract, alimony that stops, benefits that run out — must be expected to continue for at least 3 years from the application. Income that ends sooner usually isn’t counted, however large.
Overtime, bonus and commission
Variable pay is where qualifying income most often drops below your actual income. Fannie Mae recommends a 2-year history and accepts a shorter one, but no less than 12 months, when other factors are strong. The lender then compares this year with last year:
- Rising or level: average year-to-date earnings with last year’s, divided by the months covered.
- Falling: the income is only usable once it has stabilized, and then only at the lower, recent level.
| Trend | Last year | This year so far | Monthly income counted |
|---|---|---|---|
| Rising | $7,200 ($600/mo) | $6,300 ($700/mo) | $642.86 (average of both periods) |
| Level | $7,200 ($600/mo) | $5,400 ($600/mo) | $600.00 (average of both periods) |
| Falling | $7,200 ($600/mo) | $3,600 ($400/mo) | $0 unless the lender documents that it has stabilized; then year-to-date ÷ months since then ($400.00 if stable all year) |
Bonuses follow the same logic: an annual bonus is turned into a monthly figure by dividing by 12, after averaging across the years the lender reviews.
Self-employment and rental income
If you own 25% or more of a business, you are self-employed in the lender’s eyes, and your income comes from tax returns after a cash-flow analysis — usually averaged over 2 years. That process has its own rules and is worked through in our post on mortgages for the self-employed.
Rental income from a property you own but don’t live in is a net figure. When the property isn’t yet on your tax return, Fannie Mae counts 75% of the lease and subtracts the property’s full mortgage payment, taxes, insurance and association dues (PITIA). A positive result is added to income; a negative one is added to your debts.
For a condo leased at $1,900 a month with $1,300 of PITIA: $1,900 × 75% = $1,425, minus $1,300, leaves $125 of income. Once the property appears on Schedule E, the lender works from the tax return instead.
The debt side: what gets added
Lenders build the debt column from your credit report and the application, then apply a few fixed rules:
- Installment loans count when more than 10 payments remain. A loan with fewer left can be dropped unless it significantly affects your ability to pay.
- Credit cards count at the minimum payment on the report. If no payment is reported, the lender uses 5% of the balance unless you document a lower one.
- Student loans count even in deferment. If no payment is reported, Fannie Mae uses 1% of the balance or a fully amortizing payment; a documented $0 income-driven payment can be used as $0. FHA uses 0.5% of the balance when the reported payment is zero.
- Leases, such as a car lease, count however few months remain.
The full worksheet
Say two co-borrowers want a $450,000 home with 10% down. One is salaried, one is paid hourly with regular overtime, and they own a leased condo.
Two-borrower DTI worksheet, $450,000 home, 10% down at today’s 7.24% average
| Line | Rule | Monthly |
|---|---|---|
| Borrower 1 salary | $78,000 ÷ 12 | $6,500.00 |
| Borrower 2 base pay | $28 × 40 hours × 52 ÷ 12 | $4,853.33 |
| Borrower 2 overtime | ($7,200 + $6,300) ÷ 21 months | $642.86 |
| Net rental income | $1,900 × 75% − $1,300 | $125.00 |
| Qualifying income | $12,121.19 | |
| New housing payment | Principal, interest, tax, insurance, PMI | $3,480.07 |
| Car loan (22 payments left) | More than 10 remain | $465.00 |
| Furniture loan (7 payments left) | 10 or fewer remain | $0.00 |
| Card with reported minimum | Minimum payment | $55.00 |
| Card, $2,400 balance, no payment reported | 5% of balance | $120.00 |
| Deferred student loan, $31,000 | 1% of balance | $310.00 |
| Total monthly debts, including housing | $4,430.07 | |
| Housing ratio | Housing ÷ income | 28.7% |
| Debt-to-income ratio | All debts ÷ income | 36.5% |
At 36.5%, this household is within the 50% that Fannie Mae’s Desktop Underwriter can approve and above the 36% limit for a manually underwritten loan (within the 45% allowed there with strong credit and reserves). Run the same household in the affordability calculator to see the price at each limit.
What moves the ratio
Small rule changes swing the result by more than most borrowers expect. Each row changes one line of the worksheet and keeps everything else, including the housing payment.
| Change | Qualifying income | Other debts | DTI |
|---|---|---|---|
| The worksheet as calculated | $12,121 | $950 | 36.5% |
| Overtime falling and not yet stable, so not counted | $11,478 | $950 | 38.6% |
| Student loan payment of $0 documented under an income-driven plan | $12,121 | $640 | 34.0% |
| Student loan at FHA’s 0.5% rule (FHA loan only) | $12,121 | $795 | 35.3% |
| Rental lease of $1,600 instead of $1,900 | $11,996 | $1,050 | 37.8% |
| Car loan paid off before applying | $12,121 | $485 | 32.7% |
Losing the overtime alone moves the ratio to 38.6%. That is why a lender asks about a pay cut, a change of shift or a new job before closing — and why a pre-approval built on income that later can’t be documented can fall apart.
Build your own worksheet
List each income source separately
Salary, hourly base pay, overtime, bonus, self-employment, rent and other income, each with the documents that prove it.
Apply the history rules
Average variable pay over at least 12 months, drop anything that is falling and unstable or ends within 3 years.
Convert everything to monthly gross
Annual ÷ 12, hourly × hours × 52 ÷ 12, rent at 75% of the lease minus PITIA.
Pull your credit report
Every account on it is a candidate for the debt column; note which installment loans have 10 or fewer payments left.
Fill the gaps the rules fill
5% of card balances with no payment, 1% of deferred student loans.
Add the new housing payment and divide
Include tax, insurance, mortgage insurance and HOA dues; compare the result with the limits in the DTI guide.
Frequently asked questions
Do lenders use gross or net income for DTI?
Gross — income before taxes and deductions. That is why a ratio that looks acceptable to a lender can still feel tight on take-home pay.
How do lenders count overtime for a mortgage?
They want at least 12 months of history (2 years is recommended) and average it. If this year is running below last year, the overtime only counts once it has stabilized, and then at the lower level.
How is hourly income calculated for a mortgage?
Hourly rate × hours per week × 52 ÷ 12. At $28 an hour for 40 hours that is $4,853.33 a month. If your hours vary, lenders look at your history rather than a single good week.
Does rental income count toward qualifying for a mortgage?
Yes, as a net figure. For a leased property not yet on your tax return, Fannie Mae counts 75% of the lease and subtracts the full PITIA; a loss is added to your debts instead.
Why does my lender count a student loan I’m not paying?
Deferred loans still count. Fannie Mae uses 1% of the balance or a fully amortizing payment, and FHA uses 0.5% of the balance when the reported payment is zero. On $31,000 that is $310 or $155 a month.
Can a loan with only a few payments left be left out?
Under Fannie Mae’s rules an installment loan with 10 or fewer payments remaining can be excluded unless it significantly affects your ability to pay. Lease payments always count.
Sources
- Freddie Mac Primary Mortgage Market Survey — 30-year fixed rate, national weekly average (Week of Oct 29, 2026)
- US Census Bureau, American Community Survey 2024 1-year — Effective property tax rate (median taxes ÷ median home value) (2024 ACS 1-year)
- Freddie Mac Research — Average homeowners insurance premium per $1,000 of home value (2023 data)
- Fannie Mae Selling Guide B3-3.8-02 — Fannie Mae: share of gross monthly rent counted as net rental income (subject property) (Sep 2, 2026)
- Fannie Mae Selling Guide B3-6-05 — Fannie Mae: monthly payment counted for a deferred or forbearance student loan, share of balance; Fannie Mae: installment debts count in DTI when more than this many payments remain; Fannie Mae: monthly payment counted for a revolving account with no reported payment, share of balance (Aug 5, 2026)
- HUD Mortgagee Letter 2021-13 — FHA: monthly payment counted for a student loan reported at $0, share of balance (Jun 17, 2021)
- Fannie Mae Selling Guide B3-6-02 — Fannie Mae maximum DTI, Desktop Underwriter loans; Fannie Mae maximum DTI, manually underwritten loans; Fannie Mae maximum DTI, manual underwriting with strong credit and reserves (Apr 2, 2025)
- Fannie Mae Selling Guide B3-3.3-02 — Fannie Mae: shortest history for bonus, overtime, commission or tip income (with positive factors); Fannie Mae: recommended history for bonus, overtime, commission or tip income (Mar 4, 2026)
- Freddie Mac My Home — Typical PMI cost, low end; Typical PMI cost, high end (Oct 28, 2026)
- Fannie Mae Selling Guide B3-3.1-04 — Fannie Mae: employment re-verified no more than this many business days before the note date (Oct 7, 2026)
- Fannie Mae Selling Guide B3-3.1-01 — Fannie Mae: income with an end date must be expected to continue at least (Oct 7, 2026)
- Fannie Mae Selling Guide B3-3.5-01 — Fannie Mae: ownership share in a business that makes a borrower self-employed; Fannie Mae: history of self-employment earnings generally required (Dec 13, 2023)
- Fannie Mae Selling Guide B3-3.8-04: Rental income from non-subject property
Last reviewed Figures are checked against the sources above. Read our editorial policy. This page is general information, not financial advice — see the disclaimer.