These are your monthly debt payments besides your mortgage such as car payments, student loans, and credit card debt. Lenders want to know you will be able to afford all your monthly debt payments – not just your monthly mortgage payment – before they approve your loan.
We often do this by calculating your debt-to-income ratio (DTI) and applying a maximum to the result. Let’s do a sample calculation. Pretend your monthly gross income is $7,000, you pay $800 a month for a car loan and student debt, and you want to buy a house that has a $1,700 monthly payment. This means your total monthly debt would be $2,500.
To calculate your DTI, divide your total monthly debt by your monthly income and express the result as a percentage. In our example, that result is 36% ($2,500 ÷ $7,000 = 0.36 or 36%). This is important because many lenders have a maximum debt-to-income ratio of 36%. So your total debt and debt-to-income ratio are important to understanding how much home you can afford and how large a mortgage you might be able to get.