Debt/Income Ratio

The ratio of debt to income is a formula lenders use to calculate how much of your income is available for a monthly mortgage payment after you have met your other monthly debt payments.

Understanding your qualifying ratio

For the most part, conventional mortgages require 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 go to housing costs (this includes mortgage principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and homeowners' association dues).

The second number in the ratio is what percent of your gross income every month which can be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, auto/boat payments, child support, and the like.

Examples:

With a 28/36 ratio

  • 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'd like to run your own numbers, feel free to use our Mortgage Loan Qualification Calculator.

Just Guidelines

Don't forget these ratios are just guidelines. We'd be happy to go over pre-qualification to help you determine how much you can afford.

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

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