Ratio of Debt to Income

The ratio of debt to income is a tool lenders use to determine how much of your income can be used for your monthly mortgage payment after you have met your other monthly debt payments.

Understanding your qualifying ratio

In general, underwriting for conventional mortgage loans requires 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 amount (as a percentage) of gross monthly income that can be applied to housing costs (this includes mortgage principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowners' association 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. For purposes of this ratio, debt includes payments on credit cards, auto/boat payments, child support, etcetera.

Some example data:

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 run your own numbers, we offer a Mortgage Loan Qualifying Calculator.

Just Guidelines

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

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

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