Debt to Income Ratio

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Your debt to income ratio is a tool lenders use to calculate how much of your income can be used for your monthly mortgage payment after all your other recurring debt obligations have been met.

Understanding your qualifying ratio

Most conventional mortgages 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 amount (as a percentage) of your gross monthly income that can be applied to housing costs (including principal and interest, PMI, homeowner's insurance, taxes, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt together. Recurring debt includes things like car loans, child support and monthly credit card payments.

Examples:

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'd like to run your own numbers, feel free to use our superb Loan Pre-Qualifying Calculator.

Remember these ratios are only guidelines. We'd be happy to pre-qualify you to help you determine how much you can afford. At Primary Residential Mortgage Inc., we answer questions about qualifying all the time. Call us: 540-433-6611.

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