Ratio of Debt to Income

Lenders use a ratio called "debt to income" to determine the most you can pay monthly after you've paid your other recurring loans.

How to figure the qualifying ratio

For the most part, conventional loans need 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 amount (as a percentage) of gross monthly income that can be spent on housing (including loan principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).

The second number in the ratio is what percent of your gross income every month that can be spent on housing costs and recurring debt together. Recurring debt includes things like auto payments, child support and credit card payments.

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 very useful Mortgage Loan Qualifying Calculator.

Just Guidelines

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

American Mortgage Advisers, Inc can walk you through the pitfalls of getting a mortgage. Give us a call: 2147390569.

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