Debt to Income Ratio

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

 

About the qualifying ratio

Typically, underwriting for conventional mortgages needs 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 percentage of your gross monthly income that can go to housing (including mortgage principal and interest, PMI, hazard insurance, property taxes, and HOA dues).

The second number in the ratio is what percent of your gross income every month that can be applied to housing costs and recurring debt. Recurring debt includes payments on credit cards, auto/boat loans, child support, et cetera.

 

Examples:

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'd like to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Qualifying Calculator.


Remember these are just guidelines. We will be thrilled to help you pre-qualify to help you determine how large a mortgage you can afford. Funding Resources Mortgage Corp can answer questions about these ratios and many others. Call us: 888-376-3762.