Debt/Income Ratio
Your debt to income ratio is a formula lenders use to determine how much of your income 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 mortgage loans requires a qualifying ratio of 28/36. FHA loans are less strict, requiring a 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 homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number is what percent of your gross income every month that can be applied to housing costs and recurring debt. Recurring debt includes credit card payments, vehicle loans, child support, and the like.
Some example data:
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'd like to run your own numbers, please use this Mortgage Pre-Qualifying Calculator.
Guidelines Only
Remember these ratios are only guidelines. We'd be happy to go over pre-qualification to determine how much you can afford.
1st Credential Mortgage Inc can walk you through the pitfalls of getting a mortgage. Give us a call at 2817780805.