Debt to Income Ratio

The debt to income ratio is a formula lenders use to calculate how much of your income can be used for a monthly home loan payment after all your other monthly debts are fulfilled.

Understanding your qualifying ratio

In general, underwriting for conventional mortgages needs 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 the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the full payment.

The second number in the ratio is what percent of your gross income every month that can be applied to housing expenses and recurring debt together. Recurring debt includes auto loans, child support and monthly credit card payments.

For example:

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 want to run your own numbers, we offer a Mortgage Loan Pre-Qualification Calculator.

Just Guidelines

Remember these ratios are just guidelines. We'd be happy to go over pre-qualification to help you figure out how large a mortgage loan you can afford.

Executive Lending Group can answer questions about these ratios and many others. Give us a call: (405) 615-8543.

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