Debt/Income Ratio

Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you've paid your other recurring loans.

Understanding the qualifying ratio

Most underwriting for conventional mortgages requires 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 how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything.

The second number is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt. Recurring debt includes auto payments, child support and monthly credit card payments.

Some example data:

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 want to run your own numbers, we offer a Mortgage Loan Qualification Calculator.

Just Guidelines

Remember these are only guidelines. We'd be happy to help you pre-qualify to help you determine how much you can afford.

American Commerce Mortgage can answer questions about these ratios and many others. Call us: 714-970-9700.

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