Debt to Income Ratio

Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you've paid your other recurring debts.

How to figure your qualifying ratio

Typically, conventional mortgage loans require 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 applied to housing costs (this includes loan principal and interest, private mortgage insurance, hazard insurance, property taxes, 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 expenses and recurring debt. Recurring debt includes payments on credit cards, car loans, child support, and the like.

Examples:

28/36 (Conventional)

  • Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
  • Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
  • Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, feel free to use our Mortgage Loan Qualification Calculator.

Just Guidelines

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

Norcal Capital Group, Inc can answer questions about these ratios and many others. Give us a call: (650) 689-5684.

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