Debt/Income Ratio

Your debt to income ratio is a formula lenders use to determine how much of your income is available for your monthly home loan payment after all your other monthly debts are met.

Understanding 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 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 tax, and HOA dues).

The second number in the ratio is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt. Recurring debt includes car payments, child support and credit card payments.

For example:

28/36 (Conventional)

  • 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'd like to calculate pre-qualification numbers on your own income and expenses, use this Loan Qualification Calculator.

Just Guidelines

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

At New Millennium Mortgage Co. NMLS: 331173, we answer questions about qualifying all the time. Give us a call at (941) 366-5800.

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