Debt to Income Ratio

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

Understanding the qualifying ratio

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

The first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything.

The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, car loans, 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, use this Mortgage Loan Qualifying Calculator.

Just Guidelines

Remember these ratios are just guidelines. We will be thrilled to go over pre-qualification to help you figure out how large a mortgage loan you can afford.

VSI Home Lending can walk you through the pitfalls of getting a mortgage. Give us a call: (260) 338-2561.

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