Ratio of Debt-to-Income

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

Understanding your qualifying ratio

In general, underwriting for conventional mortgage loans needs 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 (this includes loan principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and homeowners' association dues).

The second number is what percent of your gross income every month that can be applied to housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto/boat payments, child support, etcetera.

For example:

28/36 (Conventional)

  • Gross monthly income of $2,700 x .28 = $756 can be applied to housing
  • Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $2,700 x .29 = $783 can be applied to housing
  • Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, we offer a Loan Pre-Qualification Calculator.

Just Guidelines

Remember these ratios are just guidelines. We'd be thrilled to pre-qualify you to help you figure out how large a mortgage loan you can afford.

Colorado Mortgage Company can walk you through the pitfalls of getting a mortgage. Call us: 719-357-6601.

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