Conventional Loans:  28/36

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Your debt-to-income ratio is one of the many things a lender considers when approving your mortgage loan application.  The debt-to-income ratio, also referred to as your qualifying ratio, is a simple way of showing what percentage of your income is available for a mortgage payment after you meet all your other continuing obligations.  The ratios are percentages that refer to your debt load.

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Conventional loans use a 28/36 debt-to-income ratio.

 

In the 28/36 ratio, the first number (28%) is your “housing expense" ratio.  It is the maximum percentage of your monthly gross income that the lender allows for your housing expenses.  Total housing expenses include:

 

• Loan principal and interest (PI)
• Private mortgage insurance (PMI), if less than 20% down payment is given
• Hazard insurance
• Property taxes
• Homeowner association dues

 

With the exception of homeowner association dues, the other expenses are commonly referred to as PITI.     

 

The second number (36%) is your “total obligations" ratio.  It is the maximum percentage of your monthly gross income that the lender allows for your housing expenses plus your recurring (long-term) debt.  Recurring debt includes:

 

• Credit card payments
• Child support
• Car loans
• Other obligations that will not be paid off within 6 to 10 months 

 

Conventional loan qualifying ratios are calculated as follows:

 

Divide your annual gross income by 12 

Example:  $48,000 ÷ 12 = $4,000 per month gross income

 

Multiply your monthly gross income by .28

Example:  $4,000 x .28 =  $1,120 per month maximum allowed for housing expenses  (PITI)

 

Multiply your monthly gross income by .36

Example:  $4,000 x .36 =  $1,440 per month maximum allowed for housing expenses (PITI) plus recurring debt