Debt to Income Ratio

The debt to income ratio is a formula lenders use to calculate how much of your income can be used for a monthly home loan payment after all your other monthly debt obligations have been met.

About your qualifying ratio

In general, underwriting for conventional mortgage loans requires 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.

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 hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.

The second number in the ratio is what percent of your gross income every month that should be spent on housing expenses and recurring debt together. Recurring debt includes vehicle loans, child support and monthly credit card payments.

For example:

With a 28/36 qualifying 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 run your own numbers, we offer a Loan Qualification Calculator.

Guidelines Only

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

Net Equity Financial Mortgage can answer questions about these ratios and many others. Call us at (215)741-3131.

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