Ratio of Debt to Income
The debt to income ratio is a formula lenders use to calculate how much of your income can be used for a monthly home loan payment after you have met your other monthly debt payments.
Understanding the qualifying ratio
For the most part, conventional mortgages require 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 in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing (including loan principal and interest, private mortgage insurance, hazard insurance, taxes, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto payments, child support, etcetera.
For example:
28/36 (Conventional)
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers on your own income and expenses, feel free to use our Mortgage Loan Qualification Calculator.
Just Guidelines
Don't forget these are only guidelines. We will be thrilled to help you pre-qualify to help you determine how much you can afford.
1st Credential Mortgage Inc can answer questions about these ratios and many others. Call us: 2817780805.