Ratio of Debt-to-Income

Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other recurring debts have been paid.

Understanding the qualifying ratio

Usually, conventional loans require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

For these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the payment.

The second number in the ratio is what percent of your gross income every month that should be spent on housing expenses and recurring debt. Recurring debt includes credit card payments, auto/boat payments, 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 run your own numbers, feel free to use our very useful Mortgage Pre-Qualifying Calculator.

Just Guidelines

Remember these are just guidelines. We'd be thrilled to go over pre-qualification to help you figure out how much you can afford.

Custom Lending Group can walk you through the pitfalls of getting a mortgage. Call us at (707) 252-2700.

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