Debt-to-Income Ratio

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

How to figure your qualifying ratio

For the most part, conventional 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) ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing costs (including mortgage principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).

The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt. Recurring debt includes things like vehicle payments, child support and 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 want to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Qualification Calculator.

Just Guidelines

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

Sierra View Financial Corp can walk you through the pitfalls of getting a mortgage. Give us a call at 916-989-6222.