Ratio of Debt-to-Income
Your debt to income ratio is a formula lenders use to calculate how much money can be used for a monthly mortgage payment after you meet your various other monthly debt payments.
About your qualifying ratio
For the most part, conventional 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) qualifying ratio.
In these ratios, 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 hazard insurance, homeowners' dues, PMI - everything that makes up the payment.
The second number is what percent of your gross income every month that should be applied to housing expenses and recurring debt. Recurring debt includes things like auto payments, child support and monthly credit card payments.
Examples:
28/36 (Conventional)
- 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 calculate pre-qualification numbers with your own financial data, we offer a Mortgage Pre-Qualification Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We'd be happy to pre-qualify you to help you figure out how large a mortgage loan you can afford.
At Debbie Oliver NMLS License #248252, America's First Choice Mortgage, NMLS License #279234, we answer questions about qualifying all the time. Give us a call: 2146635355.