Ratio of Debt-to-Income

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

How to figure the qualifying ratio

For the most part, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing (this includes loan principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowners' association dues).

The second number is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, car loans, child support, etcetera.

Examples:

28/36 (Conventional)

  • 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 calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Loan Pre-Qualification Calculator.

Guidelines Only

Don't forget these ratios are just guidelines. We will be thrilled to go over pre-qualification to help you determine how much you can afford.

At Custom Lending Group, we answer questions about qualifying all the time. Give us a call: (707) 252-2700.

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