Debt-to-Income Ratio

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

Understanding your qualifying ratio

Most conventional mortgage loans need 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 amount (as a percentage) of your gross monthly income that can go to housing (this includes mortgage principal and interest, PMI, hazard insurance, taxes, and HOA dues).

The second number is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt. Recurring debt includes things like car payments, child support and credit card payments.

Examples:

With 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 run your own numbers, feel free to use our very useful Loan Pre-Qualification Calculator.

Guidelines Only

Remember these ratios are only guidelines. We will be thrilled to pre-qualify you to help you figure out how large a mortgage you can afford.

AmeriBest Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call: (321) 777-7277.

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