Ratio of Debt to Income

The debt to income ratio is a formula lenders use to calculate how much of your income is available for a monthly home loan payment after all your other recurring debts have been fulfilled.

Understanding the qualifying ratio

In general, underwriting for conventional mortgages requires 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, HOA dues, Private Mortgage Insurance - everything.

The second number is what percent of your gross income every month that can be spent on housing expenses and recurring debt together. Recurring debt includes auto/boat payments, child support and monthly credit card payments.

Examples:

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, feel free to use our superb Loan Qualification Calculator.

Guidelines Only

Don't forget these ratios are only guidelines. We'd be happy to pre-qualify you to help you determine how large a mortgage you can afford.

Firelight Mortgage Consultants can answer questions about these ratios and many others. Give us a call at (303) 228-2254.

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