Ratio of Debt to Income
The debt to income ratio is a tool lenders use to determine how much money can be used for your monthly home loan payment after you have met your other monthly debt payments.
How to figure the qualifying ratio
For the most part, conventional mortgages need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
For these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything.
The second number is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt together. Recurring debt includes auto/boat loans, child support and monthly credit card payments.
For example:
28/36 (Conventional)
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, feel free to use our superb Mortgage Pre-Qualifying Calculator.
Just Guidelines
Remember these ratios are just guidelines. We'd be thrilled to pre-qualify you to help you determine how large a mortgage you can afford.
At Pacificwide Lending, we answer questions about qualifying all the time. Give us a call: 9254610500.