Debt to Income Ratio

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

Understanding your qualifying ratio

For the most part, conventional mortgages need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

The first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything that constitutes the full payment.

The second number is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt. Recurring debt includes auto payments, child support and monthly credit card payments.

Examples:

A 28/36 qualifying 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 calculate pre-qualification numbers on your own income and expenses, feel free to use our superb Mortgage Qualification Calculator.

Just Guidelines

Remember these ratios are only guidelines. We will be thrilled to go over pre-qualification to help you determine how much you can afford.

At Savers Home Loans, we answer questions about qualifying all the time. Call us: (800) 974-0509.