Debt/Income Ratio

The debt to income ratio is a tool lenders use to calculate how much of your income is available for a monthly home loan payment after you have met your other monthly debt payments.

Understanding your qualifying ratio

Typically, conventional mortgages require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

In these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything that makes up the full payment.

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. For purposes of this ratio, debt includes payments on credit cards, car payments, child support, etcetera.

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 want to run your own numbers, we offer a Loan Qualification Calculator.

Guidelines Only

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

At Cottingham Mortgage Inc., we answer questions about qualifying all the time. Give us a call: (800) 288-9693.

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