Ratio of Debt to Income

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The ratio of debt to income is a formula lenders use to calculate how much money is available for your monthly home loan payment after all your other recurring debt obligations are fulfilled.

Understanding your qualifying ratio

Typically, underwriting for conventional loans requires 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 spent on housing (this includes principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and HOA dues).

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

Examples:

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'd like to run your own numbers, use this Mortgage Loan Pre-Qualifying Calculator.

Guidelines Only

Remember these ratios are just guidelines. We'd be happy to go over pre-qualification to help you figure out how large a mortgage you can afford.

At Frontier Financial Credit Union, we answer questions about qualifying all the time. Give us a call: Frontier Financial Credit Union.