Debt to Income Ratio

Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other monthly debts have been paid.

About the qualifying ratio

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

For these ratios, the first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.

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

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 run your own numbers, use this Mortgage Loan Qualification Calculator.

Guidelines Only

Remember these ratios are just guidelines. We will be happy to go over pre-qualification to determine how much you can afford.

Atlantic Financial Services can walk you through the pitfalls of getting a mortgage. Give us a call at (732) 969-9300.

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