Ratio of Debt to Income

Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you have paid your other recurring loans.

How to figure the qualifying ratio

Usually, 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 gross monthly income that can be spent on housing (this includes mortgage principal and interest, PMI, homeowner's insurance, taxes, and HOA dues).

The second number is what percent of your gross income every month which can be spent on housing expenses and recurring debt. Recurring debt includes payments on credit cards, auto payments, child support, etcetera.

Examples:

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 want to calculate pre-qualification numbers with your own financial data, feel free to use our superb Loan Qualification Calculator.

Just Guidelines

Remember these are only guidelines. We'd be thrilled to help you pre-qualify to help you figure out how much you can afford.

Northeast Bancorp of America, Inc. can answer questions about these ratios and many others. Call us at (440) 234-9660.

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