FHA DTI Miscalculations: The Four Obligations Most Often Wrongly Counted

A buyer near Folly Beach almost lost her signed contract because her debt to income ratio came in three points higher than it should have. The cause wasn't her spending or her income. It was four line items on her credit report that FHA guidelines explicitly exclude from DTI, but that had been counted anyway.

If you're already deep into an FHA file, you've probably heard that some debts don't count. What's less commonly understood is exactly which ones, and how often they slip through uncorrected.

The Four That Trip Up Files Most Often

In the case we're using here, call her Naomi, a freelance graphic designer and single mom, the items wrongly loaded onto her DTI were a medical collection, her child care payment, her union dues, and a credit card sitting at a zero balance. Every one of these is named directly in HUD's exclusion list, yet all four had been counted against her.

This pattern shows up constantly. Medical collections get treated like any other collection account. Child care gets treated like a recurring installment debt. Union dues get read as a membership obligation. And zero balance accounts get flagged simply because they exist on the report, even though there's no payment being made against them.

The Verbatim Rule

HUD 4000.1 states it plainly:

"Obligations not considered debt include: medical collections; federal, state, and local taxes if not delinquent and no payments required; automatic deductions from savings when not associated with another obligation; FICA and other retirement contributions such as 401(k); collateralized loans secured by depository accounts; utilities; child care; commuting costs; union dues; insurance other than property insurance; open accounts with zero balances; voluntary deductions when not associated with another obligation."

Notice how specific this list is. It's not a general instruction to use judgment. It names medical collections, child care, union dues, and zero balance accounts individually. There's no ambiguity to interpret around.

Why This Gets Missed

Automated underwriting pulls every trade line from a credit report and applies default treatment unless someone manually overrides it. If nobody checks the file against this exact exclusion list line by line, obligations that should never touch DTI end up inflating it anyway. That's exactly what happened in Naomi's case, and it pushed her ratio three points past where it needed to be.

What To Check Before You Finalize Any DTI

Before signing off on a DTI calculation, run the credit report against FHA Section II.A.4.b.iv.Q, Obligations Not Considered Debt. Specifically flag medical collections, utilities, child care, union dues, 401(k) contributions, and any open account carrying a zero balance. Once Naomi's file was corrected against this list, her ratio came back into range and her contract held.

If you're reviewing a borderline DTI file and something doesn't look right, I'm Jason Sharon, a licensed mortgage broker at Home Loans Inc. Call 843-LOW-RATE and I'll help you work through the numbers.

Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.