Debt/Income Ratio

Your debt to income ratio is a tool lenders use to calculate how much money is available for your monthly mortgage payment after you meet your various other monthly debt payments.

Understanding the qualifying ratio

Most underwriting for conventional mortgages needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (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 (this includes loan principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and homeowners' association dues).

The second number is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, car loans, child support, and the like.

For example:

With 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 calculate pre-qualification numbers with your own financial data, feel free to use our superb Mortgage Loan Qualification Calculator.

Just Guidelines

Don't forget these are just guidelines. We will be thrilled to go over pre-qualification to help you determine how large a mortgage loan you can afford.

Net Equity Financial Mortgage LLC can answer questions about these ratios and many others. Call us at 2157413131.