Ratio of Debt to Income
Your ratio of debt to income is a tool lenders use to calculate how much of your income is available for a monthly mortgage payment after you have met your various other monthly debt payments.
Understanding your qualifying ratio
Most underwriting for conventional mortgage loans requires 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 amount (as a percentage) of your gross monthly income that can go to housing costs (this includes principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt. Recurring debt includes things like car payments, child support and credit card payments.
Some example data:
A 28/36 ratio
- 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, we offer a Loan Qualifying Calculator.
Remember these ratios are just guidelines. We will be happy to help you pre-qualify to determine how large a mortgage loan you can afford.
At Custom Lending Group, we answer questions about qualifying all the time. Call us at (707) 252-2700.