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What is a Liability?

A Liability represents a debt or financial obligation that a borrower must pay. In mortgage underwriting, liabilities are critical because they directly impact a borrower’s debt-to-income (DTI) ratio, which is one of the primary factors lenders use to determine loan qualification. Liabilities can include:
  • Existing mortgages on other properties
  • Credit card debt
  • Auto loans
  • Student loans
  • Personal loans
  • Home equity lines of credit (HELOCs)
  • Tax liens and judgments
  • And other financial obligations

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Why does the Liability entity exist?

Mortgage underwriting requires more than simply using monthly payment amounts in DTI calculations. Different types of liabilities are handled differently based on regulatory requirements, lender guidelines, and the specific characteristics of each debt:
  1. Payment vs. Balance - Some liabilities use the actual monthly payment, while others (like deferred student loans or revolving credit) require special calculations based on the balance.
  2. Property Association - Liabilities can be tied to specific properties (like a mortgage on an owned property), which affects how rental income and expenses are calculated.
  3. Intent Management - Borrowers may plan to pay off certain liabilities before or at closing, which changes their impact on qualification.
  4. Exclusion Reasons - Some liabilities shouldn’t count toward DTI (e.g., business debts paid from business funds, debts assigned to another party).

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Types of liabilities and implications

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Standard installment and revolving debt

Standard liabilities include auto loans, personal loans, credit cards, and other debts with regular monthly payments. Implications: These liabilities use their actual monthlyPayment amount in DTI calculations. The payment amount is straightforward and directly impacts the borrower’s debt-to-income ratio. Example: The borrower has a car loan with a $350 monthly payment and credit cards with a $200 minimum payment. Both liabilities are included in their DTI calculation using these payment amounts. For standard installment debt (auto loans, personal loans), the monthlyPayment field is used directly. For revolving credit accounts (credit cards, lines of credit), lenders typically use 5% of the outstanding balance as the monthly payment, even if the minimum payment is lower, to ensure conservative underwriting.
Revolving credit calculation: Lenders use 5% of the outstanding balance for revolving credit accounts in DTI calculations, regardless of the actual minimum payment. This ensures conservative underwriting by assuming higher utilization.
See the Liability documentation for how different liability types are handled.

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Deferred student loans

Student loans in deferment require special handling because the actual payment may be $0, but lenders must still account for the debt in DTI calculations. Implications: Instead of using the actual payment amount, lenders calculate an effective monthly payment based on a percentage of the loan balance. This ensures the debt is properly accounted for even when payments aren’t currently being made. Example: The borrower has $50,000 in deferred student loans. Even though they’re not making payments currently, the lender must calculate an effective monthly payment for DTI purposes. Under Fannie Mae guidelines, this would typically be 1% of the balance ($500/month), but the calculation method varies by agency.
How deferred student loans are calculated: Fannie Mae and Freddie Mac treat deferred student loans differently. Fannie Mae typically requires using 1% of the outstanding balance as the monthly payment amount for DTI calculations, whereas Freddie uses 0.5% of the outstanding balance. The specific calculation method depends on the loan program and agency guidelines being followed.
For deferred student loans, the system uses the balance field to calculate the effective monthly payment, not the monthlyPayment field. See the Liability documentation for the type field to identify DEFERRED_STUDENT_LOAN liabilities.

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Property-associated liabilities

Mortgages and liens on properties owned by the borrower are liabilities that may be associated with those properties. Implications: When a liability is associated with a property that generates rental income, the net effect (rental income minus mortgage payment) is what matters for qualification, not the liability payment alone. This can result in either a positive or negative impact on qualification. Example 1 (Positive Net Effect): The borrower owns a rental property with a $1,200/month mortgage payment. The property generates $1,800/month in rental income. The net effect is +$600/month, which actually improves their qualification rather than hurting it. Example 2 (Negative Net Effect): The borrower owns a rental property with a $2,500/month mortgage payment. The property generates $1,800/month in rental income, but the mortgage payment exceeds the rental income. The net effect is -$700/month, which counts as a liability in their DTI calculation. This negative cash flow reduces their qualifying income. Property-associated liabilities are linked to an OwnedProperty via the ownedPropertyId field. The system evaluates the property’s rental income against its associated liabilities to calculate the net monthly impact. See the OwnedProperty and Liability documentation for details.

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Liabilities with payment intent

Borrowers may plan to pay off certain liabilities before or at closing, or subordinate them to the new mortgage. Implications: The intent field determines whether a liability counts toward DTI calculations. Liabilities that will be paid off are excluded from DTI, while those that will remain (including subordinated ones) continue to count. The intent field on a liability determines whether it counts toward DTI calculations:
Intent ValueDescriptionDTI Impact
DO_NOTHINGLiability remains active and continues as normalCounts toward DTI
PAY_AT_CLOSINGLiability will be paid at closing using loan proceeds or assetsExcluded from DTI
PAY_BEFORE_CLOSINGLiability will be paid before closing using borrower’s fundsExcluded from DTI
SUBORDINATELiability will remain but be subordinated to the new mortgage (common for HELOCs and second mortgages)Counts toward DTI
Example: The borrower has a $5,000 credit card balance that they plan to pay off at closing using cash from their savings account. The liability’s intent is set to PAY_AT_CLOSING, so it’s excluded from DTI calculations. See the Liability documentation for the intent field and related mutations.

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Excluded liabilities

Some liabilities shouldn’t count toward DTI for various reasons, such as business debts paid from business funds, debts assigned to another party, or utilities. Implications: When a liability has an exclusionReason, it’s excluded from DTI calculations entirely. This provides transparency in underwriting decisions and ensures only relevant debts impact qualification. Example: The borrower has a business credit card that’s paid from their business account, not personal funds. The liability’s exclusionReason is set to BUSINESS_DEBT_PAID_FROM_BUSINESS_FUNDS, so it doesn’t count toward their personal DTI. Common exclusion reasons include business debts paid from business funds, debts assigned to another party, debts paid by others, utilities, and debts with less than 10 months remaining. When a liability has an exclusionReason, it’s excluded from DTI calculations. See the Liability documentation for all available exclusion reasons.

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Key concepts to remember

A liability can be linked to a borrower directly, or it can be associated with a property (either an owned property or the subject property of the loan). Property-associated liabilities are typically mortgages or liens on that specific property.
Not all liabilities use their actual monthly payment in DTI calculations. Deferred student loans use 1% of balance, revolving credit uses 5% of balance, and some liabilities may be excluded entirely based on intent or exclusion reason.
The intent field is critical for DTI calculations. Liabilities marked as PAY_AT_CLOSING or PAY_BEFORE_CLOSING are excluded from DTI, while DO_NOTHING liabilities are included. SUBORDINATE is used for HELOCs and second mortgages that will remain but be subordinated to the new loan.
When a liability shouldn’t count toward DTI, the exclusionReason field documents why. This provides transparency in underwriting decisions and helps explain why certain debts don’t impact qualification.
When a liability is associated with an owned property that generates rental income, the net effect (income minus liability payment) is what matters for qualification, not the liability payment alone.
For more information on related entities, see the GraphQL API Reference:
  • Borrower - Borrower profiles that own liabilities and are evaluated for DTI.
  • OwnedProperty - Properties owned by borrowers that may have associated mortgage liabilities.
  • SubjectProperty - The property being purchased or refinanced, which may have existing liens.
  • LoanApplication - The loan application that contains the borrower’s liabilities.