Ratio of Debt-to-Income
The ratio of debt to income 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.
About the qualifying ratio
For the most part, 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.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be spent on housing costs (this includes mortgage principal and interest, private mortgage insurance, hazard insurance, taxes, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto payments, child support, etcetera.
Some example data:
A 28/36 ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers on your own income and expenses, use this Mortgage Pre-Qualification Calculator.
Remember these ratios are just guidelines. We will be thrilled to help you pre-qualify to help you figure out how large a mortgage you can afford.
Amity Mortgage LLC can walk you through the pitfalls of getting a mortgage. Call us at (203) 729-6681.