Ratio of Debt to Income
Your debt to income ratio is a formula lenders use to calculate how much of your income is available for your monthly mortgage payment after all your other recurring debt obligations are fulfilled.
Understanding your qualifying ratio
For the most part, underwriting for conventional loans requires 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 gross monthly income that can be spent on housing costs (including principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).
The second number in the ratio is what percent of your gross income every month that can be applied to housing costs and recurring debt together. Recurring debt includes vehicle payments, child support and monthly credit card payments.
For example:
28/36 (Conventional)
- 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 want to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Qualification Calculator.
Just Guidelines
Don't forget these are only guidelines. We will be thrilled to help you pre-qualify to determine how much you can afford.
Executive Lending Group, LLC can answer questions about these ratios and many others. Call us: 8165258000.