Ratio of Debt-to-Income

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The ratio of debt to income is a tool lenders use to calculate how much of your income can be used for a monthly mortgage payment after all your other recurring debts have been fulfilled.

Understanding the qualifying ratio

Usually, underwriting for conventional mortgages needs 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 gross monthly income that can go to housing (this includes loan principal and interest, PMI, hazard insurance, taxes, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt. Recurring debt includes vehicle loans, child support and credit card payments.

Examples:

A 28/36 ratio

  • 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 run your own numbers, we offer a Loan Qualification Calculator.

Guidelines Only

Remember these are just guidelines. We will be thrilled to pre-qualify you to help you figure out how large a mortgage you can afford.

 

Joe Wagner can walk you through the pitfalls of getting a mortgage. Call Joe Wagner at 612-327-4544.

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