Debt-to-Income Ratio

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Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you've paid your other recurring debts.

Understanding your qualifying ratio

Most conventional mortgage loans require 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 gross monthly income that can be applied to housing costs (this includes mortgage 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 that can be applied to housing costs and recurring debt. Recurring debt includes things like vehicle loans, child support and monthly credit card payments.

Some example data:

A 28/36 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 want to run your own numbers, we offer a Loan Pre-Qualifying Calculator.

Remember these ratios are just guidelines. We will be thrilled to pre-qualify you to determine how large a mortgage loan you can afford. Real Estate Loan 4 U can walk you through the pitfalls of getting a mortgage. Call us: (408) 255-3978.