Debt-to-Income Ratio

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

How to figure the qualifying ratio

In general, underwriting for conventional mortgages needs 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 (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 should be applied to housing costs and recurring debt. Recurring debt includes auto payments, child support and monthly credit card payments.

Some example data:

28/36 (Conventional)

  • 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, please use this Loan Qualifying Calculator.

Just Guidelines

Remember these are only guidelines. We'd be happy to go over pre-qualification to help you determine how large a mortgage you can afford.

American Commerce Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call: 714-970-9700.

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