Debt/Income Ratio

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The ratio of debt-to-income is a formula lenders use to determine how much of your income can be used for your monthly home loan payment after all your other monthly debts have been met.

About your qualifying ratio

Typically, conventional loans 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.

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

The second number in the ratio is what percent of your gross income every month that should be spent on housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, car loans, child support, and the like.

For example:

A 28/36 ratio

  • 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 (TND) 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 calculate pre-qualification numbers on your own income and expenses, feel free to use our very useful Mortgage Pre-Qualifying Calculator.

Just Guidelines

Remember these ratios are only guidelines. We will be happy to pre-qualify you to help you figure out how large a mortgage you can afford.

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