Ratio of Debt-to-Income

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

Understanding the qualifying ratio

Most conventional mortgage loans need 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 go to housing (this includes mortgage principal and interest, private mortgage insurance, homeowner's insurance, taxes, and homeowners' association dues).

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

Examples:

With a 28/36 qualifying 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'd like to calculate pre-qualification numbers with your own financial data, feel free to use our very useful Mortgage Loan Pre-Qualifying Calculator.

Just Guidelines

Remember these are just guidelines. We will be thrilled to help you pre-qualify to determine how large a mortgage loan you can afford.

At Foxfield Financial, we answer questions about qualifying all the time. Call us: 720-598-8300.

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