Ratio of Debt-to-Income

Your debt to income ratio is a tool lenders use to calculate how much money can be used for a monthly home loan payment after you have met your various other monthly debt payments.

Understanding your qualifying ratio

In general, underwriting for conventional mortgage loans needs 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 your gross monthly income that can go to housing (including loan principal and interest, PMI, homeowner's insurance, property taxes, and homeowners' association dues).

The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt. Recurring debt includes payments on credit cards, vehicle payments, child support, and the like.

Some example data:

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'd like to run your own numbers, we offer a Mortgage Loan Pre-Qualifying Calculator.

Guidelines Only

Don't forget these ratios are only guidelines. We'd be happy to go over pre-qualification to determine how large a mortgage loan you can afford.

Atlantic Financial Services can answer questions about these ratios and many others. Call us at (732) 969-9300.

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