Debt-to-Income Ratio

Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other recurring debts are paid.

Understanding the qualifying ratio

Typically, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 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 (including mortgage principal and interest, PMI, hazard insurance, taxes, and HOA dues).

The second number in the ratio is what percent of your gross income every month which can be spent on housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, auto payments, child support, etcetera.

Some example data:

A 28/36 qualifying ratio

• 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 very useful Loan Qualifying Calculator.

Guidelines Only

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

At Norcal Capital Group, Inc, we answer questions about qualifying all the time. Call us at 6507631924.