Debt-to-Income Ratio

Your debt to income ratio is a formula lenders use to calculate how much of your income can be used for a monthly mortgage payment after you meet your various other monthly debt payments.

How to figure the qualifying ratio

In general, underwriting for conventional mortgages 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 in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing costs (including mortgage 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, auto/boat payments, child support, and the like.

Examples:

With a 28/36 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 want to calculate pre-qualification numbers on your own income and expenses, feel free to use our superb Mortgage Loan Qualification Calculator.

Guidelines Only

Remember these ratios are just guidelines. We'd be happy to go over pre-qualification to help you determine how much you can afford.

Family Mortgage Company of Hawaii, Inc. NMLS #244497 can answer questions about these ratios and many others. Call us: (808) 935-0678.