Ratio of Debt-to-Income
Your debt to income ratio is a formula lenders use to calculate how much money can be used for your monthly home loan payment after you have met your various other monthly debt payments.
How to figure your qualifying ratio
Most conventional loans need a qualifying ratio of 28/36. FHA loans are less strict, 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 homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything that constitutes the payment.
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, vehicle payments, child support, etcetera.
For example:
A 28/36 ratio
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Qualifying Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We will be thrilled to go over pre-qualification to help you determine how large a mortgage you can afford.
At Pacificwide Lending, we answer questions about qualifying all the time. Call us: 9254610500.