Debt to Income Ratio

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

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 (including principal and interest, PMI, hazard insurance, property taxes, and homeowners' association dues).

The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, auto/boat loans, child support, and the like.

Examples:

With a 28/36 ratio

  • Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
  • Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
  • Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, feel free to use our superb Mortgage Loan Qualification Calculator.

Just Guidelines

Don't forget these ratios are just guidelines. We'd be thrilled to pre-qualify you to help you determine how large a mortgage loan you can afford.

Carter Financial Solutions can walk you through the pitfalls of getting a mortgage. Call us at 866-840-8745 x2.