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Debt-to-Income Ratio

The debt to income ratio is a formula lenders use to determine how much money is available for your monthly home loan payment after all your other monthly debts are met.

Understanding the qualifying ratio

Typically, conventional mortgage loans require 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 in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing (including loan principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).

The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt together. Recurring debt includes payments on credit cards, auto loans, child support, etcetera.

Examples:

A 28/36 qualifying 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 Mortgage Pre-Qualifying Calculator.

Guidelines Only

Remember these ratios are just guidelines. We will be thrilled to pre-qualify you to help you figure out how large a mortgage loan you can afford.

Greystone Loans, Inc. can walk you through the pitfalls of getting a mortgage. Call us: (909) 467-1090.

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