Debt/Income Ratio

The debt to income ratio is a tool lenders use to calculate how much of your income can be used for a monthly home loan payment after all your other recurring debts are met.

How to figure your qualifying ratio

Most conventional mortgages require a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing costs (including loan principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).

The second number is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt together. Recurring debt includes car loans, child support and credit card payments.

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'd like to calculate pre-qualification numbers with your own financial data, feel free to use our very useful Loan Pre-Qualification Calculator.

Just Guidelines

Remember these ratios are just guidelines. We will be happy to go over pre-qualification to help you determine how much you can afford.

At The Lending Source, we answer questions about qualifying all the time. Give us a call at 9736012122.

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