Debt/Income Ratio

The debt to income ratio is a formula lenders use to determine how much of your income is available for your monthly home loan payment after all your other recurring debts are fulfilled.

Understanding the qualifying ratio

For the most part, underwriting for conventional mortgages 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 is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the full payment.

The second number in the ratio is what percent of your gross income every month which can be applied to housing expenses and recurring debt. Recurring debt includes credit card payments, auto/boat payments, child support, and the like.

For example:

28/36 (Conventional)

  • Gross monthly income of $2,700 x .28 = $756 can be applied to housing
  • Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $2,700 x .29 = $783 can be applied to housing
  • Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers on your own income and expenses, we offer a Loan Pre-Qualification Calculator.

Just Guidelines

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

1st Credential Mortgage Inc can answer questions about these ratios and many others. Give us a call: (281) 778-0805.

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