Ratio of Debt-to-Income

The ratio of debt to income is a tool lenders use to determine how much money is available for a monthly mortgage payment after all your other monthly debt obligations are fulfilled.

Understanding your qualifying ratio

Most underwriting for conventional loans 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 gross monthly income that can go to housing costs (this includes mortgage principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).

The second number is what percent of your gross income every month that should be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto loans, child support, and the like.

Some example data:

A 28/36 qualifying ratio

  • Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
  • Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
  • Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, we offer a Loan Qualifying Calculator.

Just Guidelines

Remember these are only guidelines. We will be happy to help you pre-qualify to determine how large a mortgage you can afford.

American Commerce Mortgage can answer questions about these ratios and many others. Call us: 714-970-9700.

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