Ratio of Debt to Income
Your debt to income ratio is a tool lenders use to determine how much of your income is available for a monthly mortgage payment after all your other recurring debts have been fulfilled.
How to figure your qualifying ratio
Most conventional mortgages need a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
For these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything that makes up the payment.
The second number is what percent of your gross income every month that should be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto/boat loans, child support, etcetera.
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 on your own income and expenses, use this Mortgage Qualification Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We will be thrilled to pre-qualify you to determine how much you can afford.
At MortgageZ LLC, we answer questions about qualifying all the time. Give us a call: 8557558700.