Freddie Mac Single-Family Seller/Servicer Guide §5401.2 — Monthly debt payment-to-income (DTI) ratio (04/01/26)
Freddie Mac Guide §5401.2 (Monthly debt payment-to-income (DTI) ratio). Gap-fill (verbatim, ID-diff).
Verbatim regulatory text
Verbatim provisions from Freddie Mac Single-Family Seller/Servicer Guide §5401.2 — Monthly debt payment-to-income (DTI) ratio (04/01/26) — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.
Freddie Mac Guide 5401.2
401-6 ■ General requirements ■ Liabilities included in the monthly debt payment-to-income (DTI) ratio ■ Liabilities that may be excluded from the monthly DTI ratio ■ Evaluating debt ratios The DTI ratio is determined by dividing the total of the Borrower’s monthly housing expense described in Section 5401.1(a) plus all monthly payments on the Borrower’s liabilities described in Section 5401.2(b) by the Borrower’s stable monthly income and/or qualifying asset amount as described in Section 5307.1(b). (a) General requirements (i) Consideration of liabilities The Borrower’s liabilities must be reflected on the Mortgage application (Form 65, Uniform Residential Loan Application) and considered when qualifying the Borrower. Sellers must review the Mortgage application, credit report, Borrower’s paystubs (if provided) and other file documentation for Borrower liabilities. All of the Borrower’s debts incurred through the Note Date must be considered when qualifying the Borrower. (ii) Debt pay offs and pay downs When the Borrower pays off or pays down an existing debt to qualify for the Mortgage, the Seller must document the source of funds used. The source of funds must meet the asset eligibility and documentation requirements in Sections 5501.3 and 5501.4. (b) Liabilities included in the monthly DTI ratio Documentation of all monthly payment amounts for the following liabilities must be included in the Mortgage file, and the monthly payment amount must be included in the DTI ratio: 1. Monthly housing expense (see Section 5401.1) 2. Payments on all installment debts with more than 10 months of payments remaining, including debts that are in a period of either deferment or forbearance. Installment debt may be excluded if the information on the credit report or other Mortgage file documentation verifies that there are 10 or fewer months of payments remaining.
Freddie Mac Guide 5401.2
401-7 (i) Student loans For student loans, the Seller must comply with the requirements in the table below. Requirements for student loans Student loans in deferment, forbearance or repayment, including income-driven repayment plans Student loan forgiveness, cancelation, discharge and employment-contingent repayment programs In all cases, an amount greater than zero must be included in the monthly DTI ratio for all student loans, as described below: ■ If the current monthly payment amount reported on the credit report is greater than zero, the Seller must use the amount reported on the credit report, unless other documentation in the Mortgage file supports a different current payment amount greater than zero, or ■ If the current monthly payment amount reported on the credit report is zero, the Seller must use 0.5% of the outstanding loan balance, as reported on the credit report, unless other documentation in the Mortgage file supports a different current payment amount greater than zero For student loans in income-driven repayment plans when documentation in the Mortgage file indicates that prior to or on the first Mortgage payment Due Date the Borrower must recertify their income and/or that the Borrower’s payment will increase the Seller may not use the monthly payment amount described above in calculating the DTI ratio and must instead use: The student loan payment may be excluded from the monthly DTI ratio provided the Mortgage file contains documentation that indicates the Borrower is eligible or approved, as applicable, for the student loan forgiveness, cancelation, discharge or employment-contingent repayment program, and the Seller is not aware of any circumstances that will make the Borrower ineligible in the future. Evidence of eligibility or approval must come from the student loan program or the employer, as applicable. Additionally, the Mortgage file documentation must indicate: ■ There are 10 or fewer monthly payments remaining until the full balance of the student loan is forgiven, canceled, discharged or in the case of an employment- contingent repayment program, paid, or ■ The monthly payment is deferred or is in forbearance and the full balance of the student loan will be forgiven, canceled, discharged or in the case of an employment- contingent repayment program, paid, at the end of the deferment or forbearance period
Freddie Mac Guide 5401.2
401-8 Requirements for student loans Student loans in deferment, forbearance or repayment, including income-driven repayment plans Student loan forgiveness, cancelation, discharge and employment-contingent repayment programs ■ The greater of the current payment amount or 0.5% of the outstanding loan balance, or ■ The documented future payment amount if greater than the current payment amount, or ■ The future payment amount that is less than or equal to the current payment amount, provided that the Mortgage file contains documentation that the Borrower has recertified their income and the future payment amount has been approved. The future payment amount must be greater than zero. (ii) Internal Revenue Service (IRS) installment agreements For IRS installment agreements, the Seller must comply with the requirements in the table below. Requirements for IRS installment agreements Approved IRS installment agreements Installment agreements pending IRS approval When the Borrower is obligated on an installment agreement approved by the IRS for payment of past-due federal taxes, all of the following requirements must be met: ■ The Seller must obtain and retain in the Mortgage file a copy of the installment agreement approved by the IRS reflecting the payment terms and verifying the monthly payment amount and balance When the Borrower has applied for an installment agreement with the IRS that is pending IRS approval, all of the following requirements must be met: ■ A copy of the application for the installment agreement reflecting the amount of taxes owed and requested payment terms must be included in the Mortgage file ■ The greater of the monthly payment amount requested by the Borrower
Freddie Mac Guide 5401.2
401-9 Requirements for IRS installment agreements Approved IRS installment agreements Installment agreements pending IRS approval ■ The monthly payment must be included in the Borrower’s DTI ratio if there are more than 10 months of payments remaining ■ The Seller must document in the Mortgage file that the Borrower is not past due under the terms of the installment agreement or the amount of taxes owed divided by 72 must be included in the Borrower’s monthly DTI ratio There must be no indication, and the Seller must have no knowledge, that the IRS has filed a Notice of Federal Tax Lien for the taxes owed by the Borrower. (iii) Timeshare loans Timeshare loans are considered installment debts, regardless of how they are reported on the Borrower’s credit report. Associated maintenance fees are not required to be included in the monthly DTI ratio. (iv) Other installment debt For other installment debts not reported on the credit report, or listed as deferred or in forbearance, the Seller must maintain in the Mortgage file documentation verifying the monthly payment amount. 3. Alimony or maintenance payments with more than 10 months of payments remaining The monthly payment amount must be documented in the Mortgage file with a copy of the signed court order, legally binding separation agreement and/or final divorce decree or equivalent documentation. Instead of including these payments in the calculation of the debt, they must be deducted from the Borrower’s stable monthly income, and the reduced stable monthly income must be used to qualify the Borrower. When entering an alimony obligation in Loan Product Advisor, select “Alimony” under “Income Type” and enter it as a negative number. If the Borrower also receives alimony income, select “Alimony” under “Income Type” and enter the amount received. Note: If the Mortgage file documentation supports that there are 10 or fewer months of payments remaining, the payment may be omitted from the DTI ratio.
Freddie Mac Guide 5401.2
401-10 4. Child support payments with more than 10 months of payments remaining The monthly payment amount must be documented with a copy of the signed court order, legally binding separation agreement and/or final divorce decree or equivalent documentation. Note: If the Mortgage file documentation supports that there are 10 or fewer months of payments remaining, the payment may be omitted from the DTI ratio. 5. Monthly payments on revolving or 30-day accounts (i) Revolving accounts If there is no monthly payment reported on the credit report and no documentation in the Mortgage file indicating the monthly payment amount, 5% of the outstanding balance will be considered the required monthly payment. (ii) 30-day accounts For 30-day accounts (i.e., accounts that require the balance to be paid in full monthly), the Seller must include the full amount of the outstanding account balance in the DTI ratio. Exception: The debt may be excluded if the Borrower has sufficient funds to pay off the outstanding account balance. These funds must be verified, in addition to any funds used to qualify the Borrower for the Mortgage transaction, and the source of funds must be an eligible source as described in Chapter 5501. (iii) Authorized user accounts When a Borrower is not the primary account holder but is an authorized user on a revolving or 30-day account, the monthly payment, as reported on the credit report, must be included in the DTI ratio only if the Seller is required by Section 5202.1(c) for Manually Underwritten Mortgages to include in the Mortgage file documentation evidencing that the Borrower has been making the payments on the account for the last 12 months. 6. Monthly lease payments regardless of the number of payments remaining When a lease is paid down, the monthly lease payment must be included in the DTI ratio. For an automobile lease, when the remaining balance is paid off/prepaid, the monthly lease payment may be excluded from the DTI ratio.
Freddie Mac Guide 5401.2
401-11 Refer to Section 5401.2(c)(vi) below for requirements when payments for solar panels subject to a lease agreement, power purchase agreement (PPA) or similar type of agreement may be excluded from the DTI ratio. 7. Monthly payment amounts for properties for which rental income is being considered for qualification purposes Refer to Chapter 5306 for requirements with respect to treatment of debt when using rental income. Refer to Chapter 5304 for requirements with respect to treatment of debt when all rental income and expenses are reported on IRS Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S Corporation. 8. Monthly payment amounts for other properties ■ The monthly payment amount must include all of the following: ❑ Principal and interest on the First Lien. For additional information about qualifying rates for the Mortgage secured by the subject property, refer to Section 4401.2 for ARM requirements and Section 4204.3 for temporary subsidy buydown plans. ❑ Taxes ❑ Insurance (e.g., hazard insurance premium and flood insurance premium) ■ The following additional expenses must be included when applicable: ❑ Bridge loan payment ❑ Mortgage insurance premiums ❑ Leasehold payments ❑ Homeowners association dues (excluding unit utility charges) ❑ Special assessments with more than 10 monthly payments remaining ❑ Maintenance Fees (excluding unit utility charges) ❑ Payment on any secondary financing (including a Home Equity Line of Credit (HELOC).
Freddie Mac Guide 5401.2
401-12 HELOC payments must be included in the monthly DTI ratio when there is an outstanding balance on the account. In the absence of a monthly payment on the credit report for the HELOC, and if there’s no documentation in the Mortgage file indicating a monthly payment amount, 1.5% of the outstanding balance will be considered to be the HELOC monthly payment amount. Refer to Section 4204.1 for when documentation of HELOC terms is required and to Section 5501.3 when HELOC proceeds are used for the transaction. (c) Liabilities that may be excluded from the monthly DTI ratio (i) Contingent liabilities A contingent liability may be excluded from the monthly DTI ratio when meeting the requirements in the table below. The documentation used to exclude the liability must meet the age of documentation requirements in Section 5102.4. Requirements for excluding contingent liabilities Debt type Eligibility and documentation requirements ■ Installment (not including Mortgages) ■ Revolving ■ Monthly lease payment Documentation in the Mortgage file must indicate the following: ■ A party other than the Borrower has been making timely payments for the most recent 12 months (regardless of whether the party is obligated on the debt) ■ The party making the payments is not an interested party to the subject real estate or Mortgage transaction* ■ Mortgage payment ■ Other property- related expenses (e.g., taxes, insurance, homeowners association dues, etc.) Documentation in the Mortgage file must indicate the following: ■ A party other than the Borrower has been making timely payments for the most recent 12 months ■ When a Mortgage payment is being excluded, the party making the Mortgage payments must be obligated on the Note ■ The party making the payments is not an interested party to the subject real estate or Mortgage transaction* * For examples of an interested party, see Section 5501.6.
Freddie Mac Guide 5401.2
401-13 Note: The Seller must evaluate the validity of circumstances under which the payments are being made by another party. For example, payments on multiple student loans made by the Borrower’s parent represent a common situation. However, additional investigation and documentation might be necessary when a Borrower’s multiple installment and revolving debts are being paid by the Borrower’s spouse who is not on the subject Mortgage. (ii) Assumed Mortgage A Mortgage may be excluded from the monthly DTI ratio when the Borrower is listed as the Borrower on a Mortgage that has been assumed by another party. If the Borrower has not been legally released from liability on the assumed Mortgage by the Servicer or owner of the Mortgage, the monthly payment may only be excluded from the monthly DTI ratio when: ■ The Mortgage file contains documentation of the property transfer, evidencing that the Borrower no longer owns the property, and ■ The assignee (the party who assumed the Mortgage) has made timely payments for at least the most recent 12 months, as documented by: ❑ A copy of the fully executed Mortgage assumption agreement, and ❑ Evidence of timely payments on the assumed Mortgage for the most recent 12 months as documented on the Borrower’s credit report (iii) Current Primary Residence pending sale If the Borrower’s current Primary Residence is pending sale and the sale will not close before the Note Date of the Mortgage or the Effective Date of Permanent Financing for Construction to Permanent Mortgages and Renovation Mortgages, the monthly payment amount for the property pending sale may be excluded from the monthly DTI ratio if the Mortgage file contains an executed sales contract for the property pending sale. If the executed sales contract includes a financing contingency, the Mortgage file must also contain evidence that the financing contingency has been cleared or a lender’s commitment to the buyer of the property pending sale. Employee relocation programs: For Borrowers being relocated pursuant to an employee relocation program, the monthly payment amount for the property pending sale may be excluded from the monthly DTI ratio if the Mortgage meets the requirements in Section 4408.1(d)(iii) for Mortgages made pursuant to employee relocation programs.
Freddie Mac Guide 5401.2
401-14 (iv) Assigned debt A liability on a debt, including a Mortgage, may be excluded from the monthly DTI ratio if the following requirements are met: ■ The obligation to make the payments has been assigned to another by court order, such as a divorce decree, regardless of whether the Borrower is legally released from liability by the creditor, and ■ The Seller documents the order (e.g., provides appropriate pages from the separation agreement or divorce decree) in the Mortgage file (v) Self-employed Borrower’s debt paid by the Borrower’s business When a self-employed Borrower is obligated on a debt that has been paid by the Borrower’s business for 12 months or longer, the monthly payment for the debt may be excluded from the monthly DTI ratio if the following requirements are met: ■ The Mortgage file contains evidence that the debt has been paid timely by the Borrower’s business for no less than the most recent 12 months, and ■ The tax returns evidence that business expenses associated with the debt (e.g., interest, lease payments, taxes, insurance) have been reported and support that the debt has been paid by the business (vi) Payments for solar panels subject to a lease agreement, PPA or similar type of agreement Lease payments for solar panels may be excluded from the monthly DTI ratio if the lease: ■ Provides for delivery of a specific amount of energy for an agreed-upon payment during a given period; and ■ Includes a production guarantee compensating the Borrower on a prorated basis when the energy produced by the solar panels is less than the level required in the lease agreement Payments for solar panels subject to a PPA or similar type of agreement may be excluded from the monthly DTI ratio if the payment is calculated based only on the generated energy. A copy of the lease agreement, PPA or similar type of agreement, as applicable, must be maintained in the Mortgage file. (vii) Payments on installment debts secured by financial assets Payments on installment debts secured by financial assets, other than cryptocurrencies, in which repayment may be obtained by liquidating the asset may be excluded from the
Freddie Mac Guide 5401.2
401-15 monthly DTI ratio when qualifying the Borrower, regardless of the payment amount or number of payments remaining. The loan secured by the financial asset must have been made by a financial institution. The Seller may consider only the portion of the funds that exceeds the loan balance as funds used to qualify the Borrower for the Mortgage transaction. See Chapter 5501 for more information. (d) Evaluating debt ratios (i) Mortgages underwritten with Loan Product Advisor Loan Product Advisor calculates and assesses the Borrower’s qualifying ratios based on submitted data. For Accept Mortgages, Loan Product Advisor has determined that the Borrower’s qualifying ratios are acceptable. (ii) Manually Underwritten Mortgages For Manually Underwritten Mortgages, the Seller must evaluate the Borrower’s ability to pay the monthly housing expense and other obligations. If the Borrower’s monthly DTI ratio exceeds 45%, the Mortgage is ineligible for sale to Freddie Mac. As a guideline, the monthly DTI ratio should not be greater than 36%. When the Borrower’s monthly DTI ratio exceeds 36%, the Seller must document in the Mortgage file justification for the higher qualifying ratio. Except in rare circumstances, the Borrower’s DTI ratio should not exceed 36% for the following Mortgages: ■ Cash-out refinance Mortgages ■ Mortgages secured by 2- to 4-unit properties ■ Mortgages where there is evidence that the Borrower increases debt and then periodically uses refinance or debt consolidation loans to reduce payments to a manageable level The following factors may be considered in justifying a DTI ratio that exceeds 36% but is not greater than 45%: