Ratio of Debt to Income
The debt to income ratio is a tool lenders use to calculate how much money can be used for your monthly home loan payment after you meet your other monthly debt payments.
Understanding the qualifying ratio
Typically, conventional loans need a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
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 applied to housing costs and recurring debt. Recurring debt includes things like vehicle loans, child support and credit card payments.
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 run your own numbers, we offer a Mortgage Loan Qualifying Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We will 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: 9043423622.