Your ratio of debt to income is a formula lenders use to calculate how much of your income is available for your monthly home loan payment after you have met your other monthly debt payments.
Understanding the qualifying ratio
In general, underwriting for conventional mortgage loans requires 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 percentage of your gross monthly income that can be spent on housing costs (including principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).
The second number is what percent of your gross income every month that can be spent on housing expenses and recurring debt. Recurring debt includes vehicle 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 want to calculate pre-qualification numbers with your own financial data, please use this Mortgage Loan Qualification Calculator.
Remember these ratios are only guidelines. We'd be thrilled to pre-qualify you to determine how large a mortgage you can afford.