Debt to Income Ratio

The ratio of debt to income is a formula lenders use to calculate how much of your income is available for a monthly mortgage payment after all your other recurring debts have been met.

Understanding the qualifying ratio

Most underwriting for conventional mortgages requires 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 be spent on housing costs (including principal and interest, PMI, homeowner's insurance, 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. Recurring debt includes vehicle payments, child support and credit card payments.

Some example data:

28/36 (Conventional)

  • Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
  • Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
  • Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you'd like to calculate pre-qualification numbers with your own financial data, feel free to use our very useful Mortgage Pre-Qualifying Calculator.

Guidelines Only

Don't forget these ratios are just guidelines. We'd be happy to pre-qualify you to determine how much you can afford.

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

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