Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other monthly debts are paid.
How to figure the qualifying ratio
Typically, conventional mortgages require a qualifying ratio of 28/36. FHA loans are less strict, requiring a 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 homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt. Recurring debt includes things like auto loans, child support and monthly credit card payments.
Some example data:
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, we offer a Loan Qualifying Calculator.
Don't forget these ratios are just guidelines. We'd be thrilled to help you pre-qualify to determine how large a mortgage loan you can afford.