Ratio of Debt-to-Income

The ratio of debt to income is a tool lenders use to determine how much money is available for a monthly home loan payment after you have met your various other monthly debt payments.

About your qualifying ratio

Most underwriting for conventional mortgage 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 (this includes mortgage principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowners' association dues).

The second number is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, vehicle loans, child support, and the like.

For example:

28/36 (Conventional)

  • 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 Loan Qualification Calculator.

Guidelines Only

Don't forget these ratios are just guidelines. We will be thrilled to go over pre-qualification to help you figure out how much you can afford.

Alerus Mortgage can answer questions about these ratios and many others. Call us at 952 417 8481.

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