Ratio of Debt to Income

Your debt to income ratio is a formula lenders use to calculate how much of your income is available for your monthly home loan payment after you have met your other monthly debt payments.

Understanding your qualifying ratio

Most 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 in a qualifying ratio is the maximum percentage of gross monthly income that can be spent on housing (this includes principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).

The second number is what percent of your gross income every month which can be applied to housing expenses and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, auto/boat payments, child support, etcetera.

For example:

With a 28/36 ratio

• Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
• Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
• Gross monthly income of $4,500 x .41 = $1,845 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 are only guidelines. We'd be thrilled to pre-qualify you to determine how large a mortgage you can afford.

At Not Your Average Lender, we answer questions about qualifying all the time. Give us a call: 9722039033.