Debt/Income Ratio

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Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you have paid your other monthly debts.

Understanding the qualifying ratio

For the most part, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing costs (including loan principal and interest, PMI, homeowner's insurance, 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 auto payments, child support and credit card payments.

For example:

A 28/36 qualifying ratio

  • 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, please use this Mortgage Qualifying Calculator.

Don't forget these ratios are just guidelines. We will be happy to pre-qualify you to help you determine how large a mortgage loan you can afford. Sierra View Financial Corp can answer questions about these ratios and many others. Give us a call: 916-989-6222.