Debt to Income Ratio

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

Understanding the qualifying ratio

In general, conventional mortgages require 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 amount (as a percentage) of your gross monthly income that can be spent on housing costs (including loan principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowners' association dues).

The second number is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt together. Recurring debt includes payments on credit cards, car loans, child support, and the like.

Examples:

With a 28/36 qualifying ratio

• Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
• Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
• Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Qualification Calculator.

Guidelines Only

Remember these ratios are only guidelines. We'd be thrilled 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: 4056158543.