Debt-to-Income Ratio

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

How to figure your qualifying ratio

Usually, underwriting for conventional loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (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 loan principal and interest, private mortgage insurance, hazard insurance, taxes, and HOA dues).

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

Examples:

With a 28/36 ratio

  • 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 run your own numbers, we offer a Loan Qualifying Calculator.

Guidelines Only

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

At First Southeast Mortgage Corporation, we answer questions about qualifying all the time. Give us a call at 954.920.9799.

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