Ratio of Debt to Income

Your ratio of debt to income is a formula lenders use to calculate how much money can be used for a monthly mortgage payment after all your other recurring debt obligations are fulfilled.

How to figure your qualifying ratio

For the most part, 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 in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing (including mortgage principal and interest, private mortgage insurance, hazard insurance, taxes, and homeowners' association dues).

The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto/boat payments, child support, etcetera.

Examples:

With a 28/36 ratio

• 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 calculate pre-qualification numbers on your own income and expenses, we offer a Loan Pre-Qualification Calculator.

Guidelines Only

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

Team Funding Group can walk you through the pitfalls of getting a mortgage. Give us a call: (925) 627-1400.