Qualification Ratio – 28 / 36 Rule

Calc Qualification 28/36 Rule
5000

The “28/36 rule” is a guideline used by many lenders in the United States to determine the maximum debt-to-income ratios that a borrower can have when applying for a mortgage loan. These ratios are used to assess a borrower’s ability to manage their monthly mortgage payments in relation to their overall financial situation.

Here’s an example to illustrate the 28/36 rule:

Let’s say your gross monthly income is $5,000.

  1. Front-End Ratio: 28% of $5,000 = $1,400. This means your monthly housing expenses, including your mortgage payment, property taxes, homeowner’s insurance, and PMI (if applicable), should not exceed $1,400.
  2. Back-End Ratio: 36% of $5,000 = $1,800. This means your total monthly debt payments, including housing expenses and other debts like car loans and credit card payments, should not exceed $1,800.

EXPLANATION

The first number, “28,” represents the front-end debt-to-income ratio. This ratio considers the percentage of your gross monthly income that can be allocated to housing expenses, including your mortgage payment, property taxes, homeowner’s insurance, and sometimes private mortgage insurance (PMI) if required. So, your housing expenses should not exceed 28% of your gross monthly income.

The second number, “36,” represents the back-end debt-to-income ratio. This ratio takes into account your total debt obligations, including your housing expenses and other monthly debts such as car loans, student loans, credit card payments, and any other recurring debts. Your total debt payments should not exceed 36% of your gross monthly income.

If your proposed mortgage and other debts fall within these guidelines, you may be considered a more qualified borrower in the eyes of many lenders. Keep in mind that different lenders may have slightly different criteria, and some may be willing to make exceptions or use different ratios, so it’s essential to consult with your lender to understand their specific requirements and terms when applying for a mortgage. Additionally, the 28/36 rule is just one aspect of the mortgage approval process, and other factors like credit score, employment history, and down payment amount also play a significant role in the lender’s decision.

Helpful Need To Knows about Mortgages

Is Providing Seller Financing Right for You?

If you're a home seller seeking to stay informed about the various options available to facilitate the sale of your property, consider exploring the method of home-seller financing. In this high mortgage rate market, this approach is gaining traction. In this guide,...

Unlocking Tax and Savings Benefits When Buying a Home

Unlock the tax and savings benefits of buying a home. Our guide makes it easy to understand the financial perks of homeownership!

Cash is King: The Perks of Selling Your House for Cash

Hello! Have you heard about selling your house for cash but are unsure what it means and what to expect? No worries, we're here to explain and simplify how to sell your house for cash. Selling your house for cash is akin to skipping the line at your favorite coffee...

Home Buying Checklist

Essential tasks to transform your home buying process into an organized and confident endeavor. Embarking on the journey to buy a new home is an exhilarating experience, but it can also be a complex and daunting one. With numerous tasks to complete, decisions to make,...

SEER and SEER2 FAQs for Florida Homeowners

What is SEER2? Think of SEER2 as the upgraded, smarter cousin of the old SEER rating. It stands for Seasonal Energy Efficiency Ratio, and it’s all about how efficiently your air conditioner keeps you cool without guzzling energy. This new standard, which rolled out in...

Thinking of Selling Your Home ‘As Is’? Here’s What Every Homeowner Needs to Know

Welcome to "As Is" Home Sales! Are you thinking about selling your home but feeling overwhelmed by the idea of renovations, repairs, and getting everything in tip-top shape? Well, you might want to consider the "as is" route. Selling a house "as is" means you’re...

Why Millennials and Gen Z are Moving to the Exurbs

Are you dreaming about a change of scenery in 2024? If you're a Millennial or Gen Z'er, there's a good chance you are. The buzz around town is all about exurb migration. It's a trend that's gaining momentum among younger generations. We're seeing a shift from urban...

Selling Your House with a Mortgage: What to Know

Welcome to selling your house with a mortgage 101! In this article, we'll guide you through the entire process of selling a home with a mortgage. From understanding the different types of mortgages to the extra steps involved with the different types, we've got you...

Go Green, Save Green: The Energy-Efficient Upgrades with the Biggest ROIs for Your Home

We’ve got the top energy-efficient upgrades for the best ROI! Boost your home’s value and save on bills with our expert-curated list!

Housing Market Trends for 2024

Introduction Hello, future homeowners and seasoned investors. Let's take a closer look at the current state of the U.S. housing market and the housing market trends for 2024. Along the way, we'll also recall the events of 2023 and their potential impact on the future...

Navigating the world of mortgages can be less daunting when you have answers to these frequently asked questions.

Keep in mind that mortgage terms and conditions can vary, so it’s crucial to work closely with a qualified mortgage professional to tailor your mortgage to your unique financial situation and homeownership goals