Debt-to-Income Ratio

The ratio of debt to income is a formula lenders use to calculate how much money is available for a monthly mortgage payment after all your other recurring debts are fulfilled.

Understanding your qualifying ratio

Usually, conventional mortgage loans require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) 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 (including principal and interest, PMI, homeowner's insurance, 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 expenses and recurring debt together. Recurring debt includes vehicle loans, child support and credit card payments.

For example:

28/36 (Conventional)

  • Gross monthly income of $3,500 x .28 = $980 can be applied to housing
  • Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
  • Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers with your own financial data, use this Mortgage Pre-Qualification Calculator.

Guidelines Only

Don't forget these are only guidelines. We will be happy 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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