Ratio of Debt-to-Income
Your debt to income ratio is a tool lenders use to determine how much money is available for a monthly home loan payment after you meet your other monthly debt payments.
How to figure your qualifying ratio
Usually, underwriting for conventional mortgages needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything.
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt. Recurring debt includes credit card payments, vehicle loans, child support, and the like.
For example:
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 run your own numbers, use this Mortgage Loan Qualification Calculator.
Just Guidelines
Remember these ratios are only guidelines. We will be thrilled to help you pre-qualify to help you determine how much you can afford.
At 1st Credential Mortgage Inc, we answer questions about qualifying all the time. Call us at (281) 778-0805.