Debt to Income Ratio

Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you've paid your other monthly loans.

About your qualifying ratio

Typically, conventional loans require 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 amount (as a percentage) of your gross monthly income that can be applied to housing (including mortgage principal and interest, PMI, hazard insurance, property taxes, and HOA dues).

The second number in the ratio is what percent of your gross income every month that can be spent on housing expenses and recurring debt. Recurring debt includes things like car payments, child support and credit card payments.

For example:

With a 28/36 ratio

  • Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
  • Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
  • Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, feel free to use our very useful Mortgage Qualification Calculator.

Guidelines Only

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

Avalon Mortgage Services, Inc. can walk you through the pitfalls of getting a mortgage. Give us a call: (708) 403-5181.

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