Debt/Income Ratio

Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you've paid your other recurring loans.

Understanding the qualifying ratio

Typically, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing costs (including mortgage principal and interest, PMI, hazard insurance, property tax, 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. Recurring debt includes vehicle payments, child support and monthly credit card payments.

Examples:

With a 28/36 qualifying 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 Loan Pre-Qualification Calculator.

Just Guidelines

Don't forget these are only guidelines. We will be thrilled to help you pre-qualify to help you figure out how large a mortgage you can afford.

VSI Home Lending can answer questions about these ratios and many others. Call us: 2603382561.