Ratio of Debt-to-Income

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Your ratio of debt to income is a formula lenders use to determine how much money can be used for your monthly home loan payment after all your other recurring debts are fulfilled.

Understanding the qualifying ratio

Usually, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.

The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can go to housing (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 should be applied to housing costs and recurring debt together. Recurring debt includes vehicle loans, child support and credit card payments.

Examples:

A 28/36 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'd like to calculate pre-qualification numbers with your own financial data, feel free to use our very useful Loan Qualification Calculator.

Guidelines Only

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

CU Mortgage Division can answer questions about these ratios and many others. Call us: 360-539-4687.