Debt/Income Ratio

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


Understanding your qualifying ratio

Most 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) ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be spent on housing costs (this includes principal and interest, PMI, homeowner's insurance, property taxes, and homeowners' association dues).

The second number in the ratio is what percent of your gross income every month which can be spent on housing costs and recurring debt together. Recurring debt includes things like auto/boat payments, child support and credit card payments.

For example:

With a 28/36 ratio

  • Gross monthly income of $3,500 x .28 = $980 can be applied to housing
  • Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
  • Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses

 

If you want to run your own numbers, feel free to use our superb Loan Pre-Qualification Calculator.

Don't forget these are just guidelines. We will be thrilled to help you pre-qualify to determine how large a mortgage loan you can afford. At Lonny Andrews, we answer questions about qualifying all the time. Call us at 916-821-7884. Want to get started? Apply Now.

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