Ratio of Debt-to-Income
Your ratio of debt to income is a formula lenders use to determine how much money can be used for a monthly home loan payment after all your other recurring debt obligations have been fulfilled.
How to figure your qualifying ratio
Typically, underwriting for conventional mortgage loans requires 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 go to housing costs (this includes mortgage principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and HOA dues).
The second number is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, car loans, child support, etcetera.
Examples:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, we offer a Loan Qualifying Calculator.
Guidelines Only
Remember these ratios are only guidelines. We'd be happy to go over pre-qualification to help you figure out how much you can afford.
At Family Mortgage Company of Hawaii, Inc. NMLS #244497, we answer questions about qualifying all the time. Give us a call: (808) 935-0678.