Debt to Income Ratio

Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you have paid your other monthly loans.

How to figure the qualifying ratio

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

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing costs (including principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and homeowners' association dues).

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

Some example data:

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 want to run your own numbers, use this Mortgage Qualification Calculator.

Just Guidelines

Don't forget these are only guidelines. We will be happy to go over pre-qualification to 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 at 714-970-9700.

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