Ratio of Debt-to-Income

Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you've paid your other monthly loans.

How to figure the qualifying ratio

For the most part, 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 in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can go to housing costs (this includes loan principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).

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

For example:

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'd like to calculate pre-qualification numbers on your own income and expenses, please use this Loan Qualifying Calculator.

Just Guidelines

Remember these are just guidelines. We will be happy to go over pre-qualification to determine how much you can afford.

Harbor View Lending* a DBA of Megastar Financial can answer questions about these ratios and many others. Give us a call at (207) 571-8034.