Debt to Income Ratio
The ratio of debt to income is a formula lenders use to calculate how much of your income is available for a monthly mortgage payment after you have met your other monthly debt payments.
How to figure your qualifying ratio
Typically, conventional loans require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing costs (including principal and interest, PMI, homeowner's insurance, taxes, and HOA dues).
The second number in the ratio is what percent of your gross income every month that can be applied to housing costs and recurring debt. Recurring debt includes things like auto/boat payments, child support and monthly credit card payments.
For example:
28/36 (Conventional)
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, we offer a Mortgage Loan Qualifying Calculator.
Just Guidelines
Remember these ratios are only guidelines. We will be happy to help you pre-qualify to help you figure out how large a mortgage loan you can afford.
Pacificwide Lending can walk you through the pitfalls of getting a mortgage. Give us a call: 9254610500.