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Debt-to-Income Ratio

The debt to income ratio is a tool lenders use to determine how much of your income can be used for a monthly home loan payment after all your other monthly debts have been fulfilled.

About your qualifying ratio

Usually, underwriting for conventional loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.

The first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the full payment.

The second number is what percent of your gross income every month that should be spent on housing costs and recurring debt together. Recurring debt includes credit card payments, auto payments, child support, etcetera.

Some example data:

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 calculate pre-qualification numbers on your own income and expenses, use this Mortgage Loan Pre-Qualifying Calculator.

Just Guidelines

Remember these ratios are only guidelines. We'd be thrilled to go over pre-qualification to determine how large a mortgage you can afford.

Town & Country Home Loans, Inc. can answer questions about these ratios and many others. Give us a call: (760)789-9995.

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