Debt to Income Ratio
The debt to income ratio is a formula lenders use to determine how much of your income is available for a monthly mortgage payment after all your other monthly debts are met.
Understanding the qualifying ratio
For the most part, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the payment.
The second number in the ratio is what percent of your gross income every month which can be applied to housing expenses and recurring debt. Recurring debt includes credit card payments, auto/boat payments, child support, etcetera.
Some example data:
A 28/36 qualifying ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, use this Loan Pre-Qualifying Calculator.
Remember these are just guidelines. We will 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. Give us a call: (281) 778-0805.