Debt to Income Ratio

Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other recurring debts are paid.

Understanding your qualifying ratio

In general, conventional mortgages need 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 amount (as a percentage) of your gross monthly income that can be spent on housing (this includes principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).

The second number in the ratio is what percent of your gross income every month that should be spent on housing expenses and recurring debt. Recurring debt includes payments on credit cards, auto loans, child support, etcetera.

Examples:

A 28/36 ratio

  • Gross monthly income of $2,700 x .28 = $756 can be applied to housing
  • Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $2,700 x .29 = $783 can be applied to housing
  • Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses

If you'd like to calculate pre-qualification numbers on your own income and expenses, use this Mortgage Pre-Qualification Calculator.

Just Guidelines

Remember these are just guidelines. We'd be thrilled to pre-qualify you to determine how much you can afford.

Savers Home Loans can answer questions about these ratios and many others. Call us at (800) 974-0509.