Ratio of Debt-to-Income

Your debt to income ratio is a tool lenders use to calculate how much of your income is available for a monthly home loan payment after all your other monthly debt obligations have been fulfilled.

Understanding the qualifying ratio

Usually, underwriting for conventional loans 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 be spent on housing (this includes loan principal and interest, PMI, hazard insurance, property taxes, and HOA dues).

The second number is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt together. Recurring debt includes things like auto loans, child support and monthly credit card payments.

Examples:

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 calculate pre-qualification numbers on your own income and expenses, please use this Mortgage Loan Qualification Calculator.

Just Guidelines

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

Assured Mortgage can walk you through the pitfalls of getting a mortgage. Call us at (414) 350-5834.

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