Ratio of Debt to Income
The debt to income ratio is a tool lenders use to calculate how much of your income can be used for your monthly mortgage payment after you meet your other monthly debt payments.
About your qualifying ratio
Most conventional mortgages need a qualifying ratio of 28/36. FHA loans are 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, HOA dues, PMI - everything that makes up the payment.
The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt together. Recurring debt includes things like vehicle loans, child support and monthly credit card payments.
For example:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, we offer a Loan Qualifying Calculator.
Just Guidelines
Don't forget these are only guidelines. We'd be happy to pre-qualify you to help you figure out how much you can afford.
Bright Vision Mortgage can walk you through the pitfalls of getting a mortgage. Call us at 9043423622.