Ratio of Debt to Income

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

Understanding the 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 (including mortgage principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and homeowners' association dues).

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

Examples:

28/36 (Conventional)

  • 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'd like to run your own numbers, use this Loan Pre-Qualification Calculator.

Guidelines Only

Remember these are only guidelines. We'd be thrilled to pre-qualify you to determine how much you can afford.

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

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