Debt/Income Ratio

Your ratio of debt to income is a tool lenders use to determine how much money can be used for a monthly home loan payment after you have met your various other monthly debt payments.

How to figure your qualifying ratio

In general, conventional 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 percentage of gross monthly income that can be applied to housing costs (this includes mortgage principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).

The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, auto payments, child support, etcetera.

Some example data:

28/36 (Conventional)

  • Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
  • Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
  • Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you'd like to calculate pre-qualification numbers on your own income and expenses, please use this Mortgage Qualification Calculator.

Just Guidelines

Remember these ratios are only guidelines. We'd be thrilled to go over pre-qualification to determine how much you can afford.

Norcal Capital Group, Inc can walk you through the pitfalls of getting a mortgage. Give us a call: (650) 689-5684.

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