Your debt to income ratio is a tool lenders use to determine how much of your income is available for a monthly home loan payment after all your other monthly debt obligations have been fulfilled.
About your qualifying ratio
Usually, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything.
The second number is what percent of your gross income every month which can be applied to housing expenses and recurring debt together. Recurring debt includes vehicle payments, child support and monthly credit card payments.
- 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'd like to calculate pre-qualification numbers on your own income and expenses, we offer a Loan Pre-Qualifying Calculator.
Don't forget these are only guidelines. We'd be happy to help you pre-qualify to help you figure out how much you can afford.
1st Credential Mortgage Inc can walk you through the pitfalls of getting a mortgage. Call us at (281) 778-0805.