Debt/Income Ratio

The ratio of debt to income is a tool lenders use to calculate how much of your income is available for your monthly home loan payment after all your other recurring debt obligations are fulfilled.

How to figure the qualifying ratio

For the most part, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are 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 costs (this includes loan principal and interest, PMI, hazard insurance, property taxes, and homeowners' association dues).

The second number in the ratio is what percent of your gross income every month that should be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, vehicle loans, child support, and the like.

Examples:

With a 28/36 qualifying ratio

  • Gross monthly income of $3,500 x .28 = $980 can be applied to housing
  • Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
  • Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, use this Mortgage Loan Pre-Qualification Calculator.

Just Guidelines

Don't forget these are just guidelines. We'd be happy to help you pre-qualify to determine how much you can afford.

Riviera Funding can answer questions about these ratios and many others. Give us a call at (310) 373-7406.

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