Ratio of Debt to Income
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other recurring debts have been paid.
How to figure your qualifying ratio
In general, underwriting for conventional mortgages requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
In these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the full payment.
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt. Recurring debt includes auto/boat loans, child support and monthly credit card payments.
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 want to run your own numbers, feel free to use our superb Mortgage Loan Qualification Calculator.
Remember these are just guidelines. We will be happy to pre-qualify you to determine how large a mortgage you can afford.
Team USA Mortgage can walk you through the pitfalls of getting a mortgage. Call us at 218-237-5128.