Debt/Income Ratio

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

About your qualifying ratio

Most conventional mortgages require 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 (this includes mortgage principal and interest, PMI, hazard insurance, property taxes, and homeowners' association dues).

The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto/boat loans, child support, etcetera.

For example:

With a 28/36 qualifying ratio

  • Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
  • Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

  • Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
  • Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses

If you want to run your own numbers, please use this Loan Pre-Qualifying Calculator.

Guidelines Only

Remember these are just guidelines. We will be thrilled to help you pre-qualify to determine how large a mortgage you can afford.

Baywide Funding Corporation can walk you through the pitfalls of getting a mortgage. Call us at 650 428 0234.