Ratio of Debt to Income

Lenders use a ratio called "debt to income" to determine the most you can pay monthly after your other recurring debts have been paid.

Understanding your qualifying ratio

Usually, conventional loans 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 percentage of gross monthly income that can be applied to housing costs (including loan principal and interest, private mortgage insurance, hazard insurance, property tax, and homeowners' association dues).

The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt. Recurring debt includes car payments, child support and credit card payments.

Examples:

A 28/36 qualifying ratio

• 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 want to run your own numbers, use this Loan Qualification Calculator.

Just Guidelines

Don't forget these ratios are only guidelines. We will be thrilled to help you pre-qualify to determine how large a mortgage loan you can afford.

First Southeast Mortgage Corporation can walk you through the pitfalls of getting a mortgage. Give us a call at 954.920.9799.