Ratio of Debt-to-Income

Your ratio of debt to income is a formula lenders use to calculate how much money is available for your monthly mortgage payment after you meet your various other monthly debt payments.

How to figure the qualifying ratio

Most underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.

The first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything.

The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, auto payments, child support, etcetera.

Examples:

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, feel free to use our superb Mortgage Qualification Calculator.

Guidelines Only

Don't forget these ratios are only guidelines. We'd be thrilled to help you pre-qualify to determine how much you can afford.

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

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