Debt-to-Income Ratio
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The debt to income ratio is a formula lenders use to determine how much money is available for a monthly home loan payment after all your other monthly debts are met.
Understanding the qualifying ratio
Most conventional mortgages 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.
In these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything.
The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto/boat loans, child support, and the like.
Examples:
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'd like to run your own numbers, feel free to use our superb Loan Qualifying Calculator.
Just Guidelines
Remember these are only guidelines. We will be thrilled to pre-qualify you to determine how large a mortgage you can afford.
