Ratio of Debt-to-Income

Your debt to income ratio is a tool lenders use to calculate how much money is available for your monthly home loan payment after you meet your other monthly debt payments.

Understanding the qualifying ratio

For the most part, conventional loans need a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.

For these ratios, the first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything.

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

Some example data:

With a 28/36 qualifying ratio

  • 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 calculate pre-qualification numbers with your own financial data, feel free to use our Loan Qualifying Calculator.

Just Guidelines

Remember these are only guidelines. We will be happy to help you pre-qualify to help you figure out how much you can afford.

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

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