Debt-to-Income Ratio
The debt to income ratio is a formula lenders use to calculate how much money can be used for a monthly home loan payment after all your other monthly debt obligations have been fulfilled.
How to figure the qualifying ratio
Typically, underwriting for conventional mortgages requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can go to housing costs (including mortgage principal and interest, PMI, hazard insurance, property taxes, and HOA dues).
The second number is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt together. Recurring debt includes auto payments, child support and credit card payments.
Some example data:
With 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'd like to run your own numbers, we offer a Mortgage Pre-Qualifying Calculator.
Just Guidelines
Remember these ratios are only guidelines. We will be happy to go over pre-qualification to help you figure out how much you can afford.
Bright Vision Mortgage can answer questions about these ratios and many others. Give us a call at 9043423622.