Ratio of Debt-to-Income
Your debt to income ratio is a tool lenders use to determine how much money is available for a monthly home loan payment after you have met your various other monthly debt payments.
Understanding your qualifying ratio
For the most part, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing costs (including loan principal and interest, private mortgage insurance, homeowner's insurance, taxes, and HOA dues).
The second number is what percent of your gross income every month that can be applied to housing expenses and recurring debt. Recurring debt includes auto loans, child support and monthly credit card payments.
For example:
With 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 run your own numbers, we offer a Loan Pre-Qualifying Calculator.
Guidelines Only
Remember these ratios are only guidelines. We will be happy to help you pre-qualify to help you figure out how large a mortgage loan you can afford.
At MortgageZ LLC, we answer questions about qualifying all the time. Call us: 8557558700.