Debt/Income Ratio

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

Understanding your qualifying ratio

Most conventional mortgages need a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing costs (including principal and interest, PMI, homeowner's insurance, taxes, and homeowners' association dues).

The second number in the ratio is what percent of your gross income every month which can be applied to housing expenses and recurring debt together. Recurring debt includes things like auto loans, child support and monthly credit card payments.

Examples:

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, we offer a Mortgage Loan Qualification Calculator.

Just Guidelines

Remember these are only guidelines. We will be thrilled to pre-qualify you to help you determine how large a mortgage you can afford.

At Cornerstone Home Mortgage, we answer questions about qualifying all the time. Give us a call: 360-570-0106.

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