Debt to Income Ratio

The ratio of debt to income is a formula lenders use to calculate how much money can be used for a monthly home loan payment after you meet your other monthly debt payments.

How to figure your qualifying ratio

Most underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.

The first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything that makes up the payment.

The second number in the ratio is what percent of your gross income every month that can be spent on housing expenses and recurring debt together. Recurring debt includes payments on credit cards, auto loans, child support, and the like.

Some example data:

With a 28/36 ratio

• Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
• Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
• Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses

If you'd like to calculate pre-qualification numbers with your own financial data, use this Loan Pre-Qualifying Calculator.

Just Guidelines

Remember these ratios are only guidelines. We will be happy to go over pre-qualification to help you figure out how large a mortgage you can afford.

Diversified Capital Funding can walk you through the pitfalls of getting a mortgage. Give us a call: (925) 226-7130 or (209) 833-3339.