Debt to Income Ratio

The debt to income ratio is a tool lenders use to calculate how much of your income can be used for a monthly home loan payment after you meet your various other monthly debt payments.

How to figure the qualifying ratio

Most conventional loans need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing costs (including loan principal and interest, PMI, hazard insurance, property tax, and HOA dues).

The second number is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt. Recurring debt includes vehicle loans, child support and monthly credit card payments.

For example:

With a 28/36 ratio

  • 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 on your own income and expenses, feel free to use our superb Mortgage Loan Qualification Calculator.

Just Guidelines

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

At Net Equity Financial Mortgage, we answer questions about qualifying all the time. Give us a call at (215)741-3131.

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