Debt-to-Income Ratio

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The ratio of debt to income is a formula lenders use to calculate how much of your income can be used for your monthly home loan payment after you meet your other monthly debt payments.

Understanding your qualifying ratio

Usually, conventional mortgage loans require 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 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, PMI - everything.

The second number is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt together. Recurring debt includes credit card payments, auto/boat loans, child support, et cetera.

Examples:

With a 28/36 ratio

• 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.

Guidelines Only

Don't forget these ratios are just guidelines. We will be happy to go over pre-qualification to help you determine how large a mortgage you can afford.

Paragon Mortgage Services, Inc. can walk you through the pitfalls of getting a mortgage. Call us at 303.727.2466.