Debt to Income Ratio
Your debt to income ratio is a formula lenders use to determine how much money is available for a monthly home loan payment after all your other recurring debts are fulfilled.
Understanding the qualifying ratio
For the most part, conventional mortgage loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be spent on housing (including loan principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).
The second number in the ratio is what percent of your gross income every month which can be spent on housing costs and recurring debt together. Recurring debt includes things like vehicle loans, child support and credit card payments.
Some example data:
With a 28/36 qualifying 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 on your own income and expenses, we offer a Mortgage Pre-Qualification Calculator.
Guidelines Only
Remember these are only guidelines. We'd be thrilled to help you pre-qualify to help you figure out how much you can afford.
Pacificwide Lending can answer questions about these ratios and many others. Give us a call at 9254610500.