Ratio of Debt-to-Income

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

Understanding the qualifying ratio

Usually, underwriting for conventional loans 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 (this includes mortgage principal and interest, PMI, homeowner's insurance, property taxes, and HOA dues).

The second number in the ratio 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/boat payments, child support and monthly credit card payments.

Examples:

With a 28/36 qualifying ratio

  • Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
  • Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
  • Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers on your own income and expenses, use this Loan Qualification Calculator.

Guidelines Only

Remember these are only guidelines. We'd be happy to pre-qualify you to determine how much you can afford.

Absolute Mortgage, a Division of Finance of America Mortgage, LLC can walk you through the pitfalls of getting a mortgage. Give us a call: 253-848-1255.

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