The ratio of debt to income is a tool lenders use to determine how much money is available for a monthly home loan payment after you have met your other monthly debt payments.
About the qualifying ratio
For the most part, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are less restrictive, 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 be applied to housing (including loan principal and interest, private mortgage insurance, homeowner's insurance, taxes, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt together. Recurring debt includes payments on credit cards, car payments, child support, and the like.
Some example data:
With a 28/36 qualifying 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'd like to run your own numbers, we offer a Mortgage Qualification Calculator.
Don't forget these are just guidelines. We will be thrilled to help you pre-qualify to determine how large a mortgage you can afford.
Savers Home Loans can walk you through the pitfalls of getting a mortgage. Give us a call at (800) 974-0509.