Ratio of Debt to Income

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

How to figure the qualifying ratio

In general, underwriting for conventional 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.

In these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything that makes up the full payment.

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

Examples:

With a 28/36 ratio

  • Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
  • Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
  • Gross monthly income of $8,000 x .41 = $3,280 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 Pre-Qualifying Calculator.

Just Guidelines

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

Reliance Mortgage Service, Inc can answer questions about these ratios and many others. Call us at 5623200510.

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