Debt to Income Ratio

The debt to income ratio is a tool lenders use to calculate how much money can be used for a monthly home loan payment after all your other monthly debt obligations have been fulfilled.

Understanding your qualifying ratio

Usually, 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 percentage of your gross monthly income that can be applied to housing costs (this includes mortgage principal and interest, PMI, hazard insurance, taxes, and homeowners' association dues).

The second number is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt together. Recurring debt includes things like auto/boat payments, child support and credit card payments.

Some example data:

28/36 (Conventional)

  • Gross monthly income of $3,500 x .28 = $980 can be applied to housing
  • Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
  • Gross monthly income of $3,500 x .41 = $1,435 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 Loan Qualification Calculator.

Just Guidelines

Don't forget these ratios are only guidelines. We'd be happy to help you pre-qualify to help you determine how large a mortgage you can afford.

Prime Capital Mortgage Corp can answer questions about these ratios and many others. Give us a call at 248-644-1200.

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