Debt/Income Ratio

The ratio of debt to income is a formula lenders use to calculate how much of your income is available for a monthly mortgage payment after you meet your various other monthly debt payments.

How to figure the qualifying ratio

For the most part, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be applied to housing (including principal and interest, PMI, homeowner's insurance, property taxes, and HOA dues).

The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt. Recurring debt includes car loans, child support and credit card payments.

Examples:

28/36 (Conventional)

  • Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
  • Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
  • Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, feel free to use our very useful Loan Pre-Qualification Calculator.

Just Guidelines

Remember these are only guidelines. We'd be thrilled to pre-qualify you to help you figure out how large a mortgage loan you can afford.

1st Credential Mortgage Inc can walk you through the pitfalls of getting a mortgage. Call us at (281) 778-0805.

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