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 all your other recurring debt obligations are met.

Understanding your 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) qualifying 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 loan principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, auto loans, child support, and the like.

Examples:

A 28/36 ratio

  • Gross monthly income of $3,500 x .28 = $980 can be applied to housing
  • Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
  • Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, we offer a Mortgage Pre-Qualifying Calculator.

Just Guidelines

Remember these ratios are just guidelines. We will be happy to go over pre-qualification to help you determine how much you can afford.

American Mortgage Advisers, Inc can answer questions about these ratios and many others. Give us a call: 214-865-7442.

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