Ratio of Debt-to-Income

The debt to income ratio is a formula lenders use to determine how much of your income is available for your monthly mortgage payment after all your other monthly debts have been fulfilled.

How to figure the qualifying ratio

In general, conventional mortgages require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

For these ratios, the first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.

The second number is what percent of your gross income every month which can be spent on housing costs and recurring debt. Recurring debt includes credit card payments, auto/boat loans, child support, etcetera.

For example:

28/36 (Conventional)

  • 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, feel free to use our Mortgage Pre-Qualification Calculator.

Guidelines Only

Remember these ratios are just guidelines. We'd be happy to pre-qualify you to help you determine how large a mortgage 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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