Debt/Income Ratio

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Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other monthly debts have been paid.

Understanding the qualifying ratio

In general, conventional loans require 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 gross monthly income that can be spent on housing costs (this includes loan principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).

The second number is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt. Recurring debt includes credit card payments, auto/boat payments, child support, and the like.

Examples:

With a 28/36 ratio

• 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 calculate pre-qualification numbers with your own financial data, please use this Loan Pre-Qualification Calculator.

Just Guidelines

Remember these ratios are just guidelines. We will be happy to help you pre-qualify to determine how large a mortgage loan you can afford.

www.JordanWilde.com can answer questions about these ratios and many others. Call us at 469.450.9453.