Ratio of Debt to Income

Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you have paid your other recurring loans.

How to figure your qualifying ratio

For the most part, underwriting for conventional mortgage loans needs 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 is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything that makes up the full payment.

The second number is what percent of your gross income every month which can be applied to housing costs and recurring debt. Recurring debt includes auto/boat payments, child support and credit card payments.

Examples:

28/36 (Conventional)

  • Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
  • Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
  • Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses

If you'd like to calculate pre-qualification numbers with your own financial data, please use this Mortgage Loan Pre-Qualification Calculator.

Just Guidelines

Don't forget these are only guidelines. We will be happy to go over pre-qualification to determine how large a mortgage loan you can afford.

Norcal Capital Group, Inc can answer questions about these ratios and many others. Give us a call: 6507631924.

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Norcal Capital Group, Inc

1369 El Camino Real
Millbrae, CA 94030