Debt-To-Income Ratio Explained

Lenders use a ratio called "debt to income" to decide your maximum monthly payment after your other recurring debts are paid.

How to figure your qualifying ratio


Usually, conventional mortgages need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing (this includes mortgage principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and homeowners' association dues).

The second number is what percent of your gross income every month which can be spent on housing expenses and recurring debt together. Recurring debt includes vehicle loans, child support and credit card payments.

Some example data:
With a 28/36 ratio

Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses


With a 29/41 (FHA) qualifying ratio

Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses.


If you'd like to calculate pre-qualification numbers with your own financial data, use this Loan Pre-Qualification Calculator.

Guidelines Only
Remember these ratios are only guidelines. We'd be happy to go over pre-qualification to help you determine how large a mortgage you can realistically afford.
Midgate Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call at 310-791-0854.
 

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