Ratio of Debt to Income

The debt to income ratio is a formula lenders use to calculate how much money can be used for your monthly mortgage payment after all your other recurring debts have been met.

Understanding the qualifying ratio

In general, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.

The first number is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that makes up the payment.

The second number is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt. Recurring debt includes things like auto/boat loans, child support and monthly credit card payments.

Examples:

28/36 (Conventional)

  • Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
  • Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
  • Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, feel free to use our Mortgage Qualification Calculator.

Guidelines Only

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

At American Commerce Mortgage, we answer questions about qualifying all the time. Call us at 714-970-9700.

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