Debt-to-Income Ratio

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

About the qualifying ratio

For the most part, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.

The first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything that constitutes the payment.

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

Examples:

A 28/36 ratio

• Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
• Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
• Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you want to calculate pre-qualification numbers on your own income and expenses, please use this Mortgage Pre-Qualifying Calculator.