Ratio of Debt-to-Income

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

How to figure the qualifying ratio

Typically, underwriting for conventional mortgages 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 in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing (including loan principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).

The second number in the ratio is what percent of your gross income every month that should be spent on housing costs and recurring debt. Recurring debt includes things like auto payments, child support and credit card payments.

Examples:

A 28/36 ratio

• 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 want to run your own numbers, feel free to use our very useful Mortgage Qualification Calculator.

Just Guidelines

Don't forget these are just guidelines. We'd be thrilled to go over pre-qualification to help you determine how large a mortgage loan you can afford.

At Foxfield Financial, we answer questions about qualifying all the time. Give us a call: 720-598-8300.