Debt/Income Ratio

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

How to figure the qualifying ratio

Typically, conventional mortgages 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 percentage of gross monthly income that can go to housing (including mortgage principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).

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

Examples:

With a 28/36 ratio

• Gross monthly income of $3,500 x .28 = $980 can be applied to housing
• Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
• Gross monthly income of $3,500 x .41 = $1,435 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 Qualification Calculator.

Just Guidelines

Remember these are just guidelines. We'd be thrilled to help you pre-qualify to help you determine how much you can afford.

Foxfield Financial can answer questions about these ratios and many others. Give us a call at 720-598-8300.