Debt/Income Ratio

Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other monthly debts are paid.

Understanding your qualifying ratio

In general, conventional mortgage loans require 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 percentage of gross monthly income that can be spent on housing (this includes loan principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).

The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, vehicle loans, child support, etcetera.

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 superb Mortgage Loan Qualification Calculator.

Guidelines Only

Remember these ratios are only guidelines. We'd be happy to go over pre-qualification to help you determine how large a mortgage you can afford.

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