Ratio of Debt to Income
The debt to income ratio is a formula lenders use to calculate how much money is available for your monthly home loan payment after you have met your various other monthly debt payments.
How to figure your qualifying ratio
In general, underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
In these ratios, 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.
The second number is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt together. Recurring debt includes vehicle loans, child support and monthly credit card payments.
For example:
A 28/36 qualifying ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers with your own financial data, use this Loan Pre-Qualifying Calculator.
Just Guidelines
Remember these are just guidelines. We will be happy to pre-qualify you to determine how much you can afford.
Pacificwide Lending can answer questions about these ratios and many others. Give us a call: 9254610500.