The ratio of debt to income is a tool lenders use to calculate how much money is available for your monthly mortgage payment after all your other monthly debts are fulfilled.
About your qualifying ratio
Most underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. FHA loans are less restrictive, 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, HOA dues, PMI - everything that makes up the full payment.
The second number is what percent of your gross income every month which can be spent on housing expenses and recurring debt together. Recurring debt includes vehicle payments, child support and monthly credit card payments.
Some example data:
- 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 calculate pre-qualification numbers on your own income and expenses, we offer a Loan Qualifying Calculator.
Don't forget these ratios are only guidelines. We'd be happy to pre-qualify you to help you determine how much you can afford.
Bright Vision Mortgage can answer questions about these ratios and many others. Call us at (904) 342-3622.