Debt to Income Ratio
The ratio of debt to income is a formula lenders use to calculate how much money is available for a monthly mortgage payment after you meet your other monthly debt payments.
About your qualifying ratio
In general, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are 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 go to housing costs (this includes loan principal and interest, PMI, hazard insurance, taxes, and HOA dues).
The second number is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, auto loans, child support, and the like.
Examples:
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 run your own numbers, we offer a Loan Pre-Qualifying Calculator.
Just Guidelines
Remember these are only guidelines. We will be thrilled to help you pre-qualify to help you determine how large a mortgage loan you can afford.
Pacificwide Lending can answer questions about these ratios and many others. Give us a call at 9254610500.