Debt to Income Ratio

The ratio of debt to income is a tool lenders use to calculate how much of your income is available for a monthly mortgage payment after all your other monthly debt obligations have been fulfilled.

Understanding the qualifying ratio

For the most part, underwriting for conventional mortgages needs 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 gross monthly income that can be spent on housing costs (this includes principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).

The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt together. Recurring debt includes payments on credit cards, auto/boat loans, child support, and the like.

For example:

A 28/36 qualifying ratio

  • 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, use this Mortgage Pre-Qualifying Calculator.

Just Guidelines

Don't forget these are just guidelines. We'd be happy to go over pre-qualification to help you figure out how large a mortgage loan 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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