Debt/Income Ratio

Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other recurring debts are paid.

How to figure your qualifying ratio

Usually, underwriting for conventional 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 be spent on housing costs (this includes principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).

The second number is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt together. Recurring debt includes credit card payments, vehicle payments, child support, etcetera.

For example:

A 28/36 qualifying ratio

• 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'd like to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Qualification Calculator.

Guidelines Only

Don't forget these ratios are only guidelines. We'd be happy to pre-qualify you to determine how large a mortgage you can afford.

Executive Lending Group can answer questions about these ratios and many others. Call us at 4056158543.