Debt to Income Ratio

Lenders use a ratio called "debt to income" to determine your maximum monthly payment after your other recurring debts are paid.

How to figure 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) qualifying ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing (including mortgage principal and interest, private mortgage insurance, hazard insurance, taxes, and HOA dues).

The second number is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt together. Recurring debt includes things like auto loans, child support and monthly credit card payments.

For example:

A 28/36 ratio

  • Gross monthly income of $2,700 x .28 = $756 can be applied to housing
  • Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $2,700 x .29 = $783 can be applied to housing
  • Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Loan Pre-Qualification Calculator.

Guidelines Only

Don't forget these ratios are just guidelines. We will be happy to help you pre-qualify to determine how much you can afford.

Refresh Funding can answer questions about these ratios and many others. Call us at 305-800-3863.

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