Debt to Income Ratio

The ratio of debt to income is a formula lenders use to determine how much of your income is available for a monthly home loan payment after all your other recurring debt obligations are met.

Understanding your qualifying ratio

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

The first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything that constitutes the full payment.

The second number is what percent of your gross income every month that can be applied to housing costs and recurring debt together. Recurring debt includes payments on credit cards, auto payments, child support, and the like.

For example:

With a 28/36 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 want to calculate pre-qualification numbers with your own financial data, feel free to use our very useful Loan Qualifying Calculator.

Guidelines Only

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

At Hawk Mortgage Group, we answer questions about qualifying all the time. Give us a call: (443) 619-7900.

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