Ratio of Debt-to-Income

Your debt to income ratio is a tool lenders use to determine how much money can be used for your monthly home loan payment after all your other recurring debt obligations are met.

How to figure your qualifying ratio

Typically, underwriting for conventional loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

In 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 homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that makes up the payment.

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

Examples:

28/36 (Conventional)

  • Gross monthly income of $3,500 x .28 = $980 can be applied to housing
  • Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
  • Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, feel free to use our Mortgage Pre-Qualification Calculator.

Just Guidelines

Remember these are only guidelines. We'd be thrilled 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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