Ratio of Debt-to-Income

The debt to income ratio is a tool lenders use to calculate how much of your income is available for a monthly mortgage payment after all your other monthly debts have been met.

How to figure your qualifying ratio

In general, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.

The first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything that makes up the payment.

The second number is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, vehicle payments, child support, and the like.

For example:

28/36 (Conventional)

  • 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 run your own numbers, feel free to use our superb Mortgage Loan Pre-Qualification Calculator.

Just Guidelines

Remember these are only guidelines. We'd be thrilled to go over pre-qualification to help you figure out how much you can afford.

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

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