Ratio of Debt-to-Income

The ratio of debt to income is a tool lenders use to determine how much of your income is available for your monthly mortgage payment after all your other recurring debt obligations have been fulfilled.

How to figure the qualifying ratio

Usually, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are 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 spent on housing (this includes mortgage principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt together. Recurring debt includes things like car loans, child support and credit card payments.

Examples:

With a 28/36 ratio

  • 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 want to calculate pre-qualification numbers with your own financial data, feel free to use our very useful Mortgage Pre-Qualifying Calculator.

Guidelines Only

Don't forget these ratios are only guidelines. We will be thrilled to go over pre-qualification to help you figure out how large a mortgage you can afford.

Norcal Capital Group, Inc can walk you through the pitfalls of getting a mortgage. Give us a call at 6507631924.

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Norcal Capital Group, Inc

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Millbrae, CA 94030