Ratio of Debt-to-Income

Your debt to income ratio is a formula lenders use to determine how much money can be used for a monthly mortgage payment after all your other recurring debts have been met.

About your qualifying ratio

Typically, underwriting for conventional mortgage loans 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 amount (as a percentage) of gross monthly income that can be applied to housing costs (this includes principal and interest, private mortgage insurance, hazard insurance, property taxes, and HOA dues).

The second number is what percent of your gross income every month which can be applied to housing costs and recurring debt. Recurring debt includes things like car payments, child support and credit card payments.

Examples:

28/36 (Conventional)

  • 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, feel free to use our very useful Mortgage Loan Qualification Calculator.

Guidelines Only

Remember these are just guidelines. We will be happy to pre-qualify you to determine how large a mortgage you can afford.

American Mortgage Advisers, Inc can answer questions about these ratios and many others. Give us a call: 2148657442.

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