Debt to Income Ratio
Your ratio of debt to income is a tool lenders use to calculate how much of your income is available for your monthly home loan payment after you have met your various other monthly debt payments.
About the qualifying ratio
In general, underwriting for conventional mortgages requires 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 amount (as a percentage) of your gross monthly income that can be spent on housing costs (this includes mortgage principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt. Recurring debt includes things like auto payments, child support and credit card payments.
For example:
A 28/36 qualifying ratio
- 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.
Just Guidelines
Don't forget these are just guidelines. We will be happy to go over pre-qualification to help you determine how much you can afford.
Debbie Oliver NMLS License #248252, America's First Choice Mortgage, NMLS License #279234 can answer questions about these ratios and many others. Give us a call: 2146635355.