Debt to Income Ratio
The ratio of debt to income is a formula lenders use to calculate how much of your income is available for a monthly mortgage payment after all your other monthly debt obligations are met.
How to figure the qualifying ratio
Usually, conventional loans need 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 is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything.
The second number is what percent of your gross income every month that can be spent on housing expenses and recurring debt together. Recurring debt includes things like vehicle payments, child support and monthly credit card payments.
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Qualification Calculator.
Don't forget these ratios are just guidelines. We will be thrilled to help you pre-qualify to help you determine how much you can afford.
America's Money Source can walk you through the pitfalls of getting a mortgage. Call us at 4078987559.