Ratio of Debt to Income

Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other recurring debts have been paid.

Understanding your qualifying ratio

Usually, conventional mortgage loans require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing costs (this includes principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).

The second number in the ratio is what percent of your gross income every month that should be applied to housing expenses and recurring debt together. Recurring debt includes car payments, child support and monthly credit card payments.

For example:

With a 28/36 qualifying ratio

  • Gross monthly income of $3,500 x .28 = $980 can be applied to housing
  • Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
  • Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers on your own income and expenses, feel free to use our very useful Loan Qualification Calculator.

Just Guidelines

Don't forget these are only guidelines. We will be happy to help you pre-qualify to help you determine how much you can afford.

Home Mortgage Lenders, Inc. can answer questions about these ratios and many others. Call us: 8139881776.

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