Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you've paid your other recurring debts.
About the qualifying ratio
Typically, 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) qualifying ratio.
In these ratios, the first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.
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 auto loans, child support and monthly credit card payments.
A 28/36 qualifying ratio
- 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 Loan Pre-Qualification Calculator.
Remember these are just guidelines. We will be happy to go over pre-qualification to determine how much you can afford.
At Executive Lending Group, LLC, we answer questions about qualifying all the time. Give us a call at (816) 525-8000 & (81.
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