Debt Service

Debt service is the total amount of money you owe in loan payments over a specific period — for homeowners, it’s your monthly mortgage payment plus any other debt obligations lenders consider when deciding if you can handle the loan.

How Lenders Use Debt Service

When you apply for a mortgage, the lender adds up all your monthly debt payments: the proposed mortgage (PITI), car loans, student loans, minimum credit card payments, personal loans, and child support. That total is your monthly debt service. They divide it by your gross monthly income to get your debt-to-income ratio, which is one of the biggest factors in your approval.

Most conventional loans cap your total debt service at 43-50% of gross income. FHA allows up to 57% in some cases.

Dollar Example

You earn $8,000/month gross. Your proposed mortgage payment is $2,400, car payment is $450, student loans are $350, and credit card minimums are $200. Your total monthly debt service is $3,400, giving you a DTI of 42.5%. That’s tight for conventional loans but doable with strong credit and reserves.

Watch Out

Lenders count minimum payments, not what you actually pay. If your credit card minimum is $150 but you pay $500/month, the lender only counts $150. That’s one of the few places the system works in your favor.

But they also count debts you might not think about: cosigned loans (even if someone else pays), installment plans like Affirm or Klarna, and deferred student loans. Pay off small debts before applying to lower your debt service ratio and strengthen your application.

Frequently Asked Questions

How can I lower my debt service to qualify for a bigger mortgage?

Pay off or pay down debts with the highest monthly payments — not necessarily the highest balances. Eliminating a $300/month car payment frees up more borrowing power than paying off a $5,000 credit card with a $100 minimum. Use our DTI calculator to see how different payoff scenarios affect your ratio.