Debt/Income Ratio

Your debt to income ratio is a formula lenders use to determine how much of your income is available for your monthly home loan payment after all your other monthly debt obligations are met.

Understanding the qualifying ratio

Usually, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can go to housing (including mortgage principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and homeowners' association dues).

The second number is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt together. Recurring debt includes credit card payments, vehicle loans, child support, and the like.

Some example data:

28/36 (Conventional)

  • Gross monthly income of $3,500 x .28 = $980 can be applied to housing
  • Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
  • Gross monthly income of $3,500 x .41 = $1,435 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 Pre-Qualification Calculator.

Guidelines Only

Remember these ratios are only guidelines. We'd be happy to go over pre-qualification to help you figure out how much you can afford.

VSI Home Lending can answer questions about these ratios and many others. Give us a call at (260) 338-2561.

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