Ratio of Debt-to-Income

Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other monthly debts are paid.

How to figure the qualifying ratio

Most conventional loans require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.

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

The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, car payments, child support, and the like.

Examples:

28/36 (Conventional)

• 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 want to run your own numbers, we offer a Loan Pre-Qualifying Calculator.

Guidelines Only

Remember these are just guidelines. We'd be thrilled to help you pre-qualify to help you figure out how large a mortgage you can afford.

Northeast Bancorp of America, Inc. can walk you through the pitfalls of getting a mortgage. Call us: (440) 234-9660.