Debt/Income Ratio

Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other recurring debts are paid.

Understanding the qualifying ratio

Most underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be applied to housing (this includes loan principal and interest, PMI, homeowner's insurance, taxes, and HOA dues).

The second number in the ratio is what percent of your gross income every month which can be applied to housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto loans, child support, etcetera.

For example:

28/36 (Conventional)

  • Gross monthly income of $2,700 x .28 = $756 can be applied to housing
  • Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $2,700 x .29 = $783 can be applied to housing
  • Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Pre-Qualifying Calculator.

Guidelines Only

Don't forget these ratios are only guidelines. We'd be thrilled to go over pre-qualification to help you determine how large a mortgage you can afford.

At The Reen Team at Direct Mortgage Funding, we answer questions about qualifying all the time. Give us a call: 4086261879.

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