Ratio of Debt to Income

The debt to income ratio is a formula lenders use to determine how much of your income can be used for a monthly home loan payment after all your other recurring debts are fulfilled.

About your qualifying ratio

In general, 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) qualifying ratio.

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

The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, car loans, child support, and the like.

Some example data:

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 on your own income and expenses, feel free to use our very useful Loan Qualification Calculator.

Just Guidelines

Remember these ratios are only guidelines. We'd be thrilled to pre-qualify you to determine how much you can afford.

Coastal Mortgage Corp. can answer questions about these ratios and many others. Give us a call at 504-866-5626.

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