Ratio of Debt to Income
The debt to income ratio is a tool lenders use to calculate how much money is available for a monthly home loan payment after all your other monthly debts have been met.
Understanding the qualifying ratio
Most underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
For these ratios, 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, homeowners' dues, PMI - everything that makes up the payment.
The second number is what percent of your gross income every month which can be spent on housing expenses and recurring debt. Recurring debt includes things like auto loans, child support and monthly credit card payments.
Some example data:
A 28/36 qualifying ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, feel free to use our Loan Pre-Qualification Calculator.
Guidelines Only
Remember these are just guidelines. We will be happy to go over pre-qualification to determine how large a mortgage loan you can afford.
At America's Money Source, we answer questions about qualifying all the time. Call us at 4078987559.