Ratio of Debt-to-Income

The debt to income ratio is a formula lenders use to calculate how much money can be used for a monthly mortgage payment after all your other monthly debt obligations have been fulfilled.

Understanding your qualifying ratio

For the most part, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing (including loan principal and interest, PMI, hazard insurance, property taxes, and homeowners' association dues).

The second number is what percent of your gross income every month which can be spent on housing expenses and recurring debt. Recurring debt includes credit card payments, auto loans, child support, and the like.

Examples:

28/36 (Conventional)

• Gross monthly income of $2,700 x .28 = $756 can be applied to housing
• Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $2,700 x .29 = $783 can be applied to housing
• Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, use this Loan Qualifying Calculator.

Just Guidelines

Don't forget these are only guidelines. We'd be thrilled to go over pre-qualification to determine how much you can afford.

Executive Lending Group can answer questions about these ratios and many others. Give us a call: 4056158543.