Debt-to-Income Ratio

Your ratio of debt to income is a formula lenders use to determine how much money is available for your monthly mortgage payment after all your other monthly debt obligations are fulfilled.

How to figure your qualifying ratio

In general, underwriting for conventional mortgages requires 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 (this includes mortgage principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).

The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt together. Recurring debt includes car payments, child support and credit card payments.

For example:

With a 28/36 qualifying ratio

  • 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 on your own income and expenses, use this Loan Qualification Calculator.

Just Guidelines

Don't forget these ratios are only guidelines. We will be thrilled to pre-qualify you to help you figure out how large a mortgage you can afford.

Real Property Finance can answer questions about these ratios and many others. Give us a call at 310-379-5997.

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