Ratio of Debt to Income

Your ratio of debt to income is a formula lenders use to determine how much of your income is available for your monthly home loan payment after you have met your various other monthly debt payments.

How to figure your 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 be spent on housing costs (including principal and interest, PMI, homeowner's insurance, taxes, and HOA dues).

The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, vehicle loans, child support, and the like.

Examples:

28/36 (Conventional)

  • Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
  • Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
  • Gross monthly income of $6,500 x .41 = $2,665 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 superb Loan Qualifying Calculator.

Just Guidelines

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

PREMIERE MORTGAGE SERVICES INC. can answer questions about these ratios and many others. Give us a call: 978-422-2311.

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