Debt-to-Income Ratio

Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you have paid your other monthly loans.

Understanding the qualifying ratio

In general, conventional mortgages need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing costs (this includes principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and homeowners' association dues).

The second number is what percent of your gross income every month that should be applied to housing costs and recurring debt together. Recurring debt includes things like auto payments, child support and credit card payments.

Examples:

A 28/36 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 run your own numbers, feel free to use our very useful Mortgage Loan Qualification Calculator.

Just Guidelines

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

At VSI Home Lending, we answer questions about qualifying all the time. Call us: (260) 338-2561.

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