Debt to Income Ratio

The debt to income ratio is a formula lenders use to determine how much of your income is available for your monthly mortgage payment after you have met your various other monthly debt payments.

Understanding the qualifying ratio

For the most part, conventional loans require a qualifying ratio of 28/36. FHA loans are a little less strict, 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 (this includes mortgage principal and interest, PMI, homeowner's insurance, property taxes, and HOA dues).

The second number in the ratio is what percent of your gross income every month which can be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, auto loans, child support, and the like.

Some example data:

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 run your own numbers, please use this Mortgage Pre-Qualification Calculator.

Just Guidelines

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

Channel Mortgage LLC can walk you through the pitfalls of getting a mortgage. Give us a call at 7186399500.

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