Debt-to-Income Ratio

The debt to income ratio is a formula lenders use to determine how much of your income can be used for a monthly mortgage payment after you meet your various other monthly debt payments.

Understanding the qualifying ratio

For the most part, conventional loans need 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.

The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can go to housing costs (this includes loan principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).

The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, auto/boat loans, child support, and the like.

Examples:

With a 28/36 qualifying 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 want to calculate pre-qualification numbers on your own income and expenses, use this Mortgage Pre-Qualification Calculator.

Just Guidelines

Don't forget these ratios are only guidelines. We will be thrilled to go over pre-qualification to help you figure out how large a mortgage you can afford.

At PREMIERE MORTGAGE SERVICES, INC., we answer questions about qualifying all the time. Give us a call: 978-422-2311.

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