Debt-to-Income Ratio

The debt to income ratio is a tool lenders use to determine how much of your income can be used for a monthly home loan payment after you meet your other monthly debt payments.

Understanding the qualifying ratio

For the most part, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. FHA loans are 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 applied to housing costs (including mortgage principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).

The second number is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, car loans, child support, and the like.

For example:

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 calculate pre-qualification numbers on your own income and expenses, use this Mortgage Loan Pre-Qualification Calculator.

Just Guidelines

Don't forget these ratios are only guidelines. We will be thrilled to go over pre-qualification to help you determine how much you can afford.

Homewithloan.com can answer questions about these ratios and many others. Give us a call at 972.798.2110.