Ratio of Debt-to-Income
Your debt to income ratio is a tool lenders use to determine how much money can be used for your monthly home loan payment after you meet your other monthly debt payments.
How to figure your qualifying ratio
Typically, underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
In these ratios, the first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' 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 costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto loans, child support, and the like.
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'd like to calculate pre-qualification numbers with your own financial data, use this Loan Qualification Calculator.
Guidelines Only
Don't forget these are only guidelines. We'd be happy to go over pre-qualification to help you determine how large a mortgage loan you can afford.
Bright Vision Mortgage can walk you through the pitfalls of getting a mortgage. Call us at 9043423622.