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

Typically, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing (including principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).

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

Examples:

28/36 (Conventional)

  • Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
  • Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
  • Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers on your own income and expenses, use this Mortgage Loan Qualification Calculator.

Guidelines Only

Remember these are just guidelines. We'd be happy to help you pre-qualify to help you figure out how much 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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