Ratio of Debt to Income

Lenders use a ratio called "debt to income" to determine your maximum monthly payment after you have paid your other monthly debts.

How to figure your qualifying ratio

In general, conventional mortgages need 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 is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything.

The second number is what percent of your gross income every month that should be applied to housing expenses and recurring debt together. Recurring debt includes things like car loans, child support and monthly credit card payments.

Some example data:

28/36 (Conventional)

  • 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 Mortgage Pre-Qualifying Calculator.

Guidelines Only

Don't forget these ratios are just guidelines. We'd be thrilled to pre-qualify you to help you determine how much you can afford.

Northeast Bancorp of America, Inc. can walk you through the pitfalls of getting a mortgage. Give us a call at (440) 234-9660.

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