Debt/Income Ratio
Your ratio of debt to income is a formula lenders use to determine how much of your income is available for a monthly mortgage payment after all your other recurring debt obligations are fulfilled.
About the qualifying ratio
Usually, conventional mortgages require 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 amount (as a percentage) of gross monthly income that can be applied to housing costs (including principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, car loans, child support, etcetera.
Examples:
With a 28/36 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 want to calculate pre-qualification numbers with your own financial data, feel free to use our very useful Mortgage Pre-Qualification Calculator.
Just Guidelines
Don't forget these are just guidelines. We will be happy to pre-qualify you to determine how much you can afford.
MortgageZ LLC can answer questions about these ratios and many others. Give us a call at 8557558700.