Debt to Income Ratio

The ratio of debt to income is a formula lenders use to determine how much money can be used for a monthly home loan payment after all your other recurring debt obligations have been fulfilled.

How to figure your qualifying ratio

For the most part, underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 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 costs (this includes principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).

The second number is what percent of your gross income every month which can be spent on housing expenses and recurring debt. Recurring debt includes things like car payments, child support and monthly credit card payments.

Examples:

A 28/36 ratio

  • 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 with your own financial data, feel free to use our Mortgage Pre-Qualifying Calculator.

Guidelines Only

Remember these ratios are only guidelines. We will be happy to go over pre-qualification to determine how large a mortgage you can afford.

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

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