Ratio of Debt to Income
The debt to income ratio is a formula lenders use to determine how much of your income can be used for your monthly home loan payment after all your other monthly debt obligations are fulfilled.
How to figure your qualifying ratio
Most underwriting for conventional mortgage loans requires 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 percentage of gross monthly income that can be applied to housing (this includes loan principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt together. Recurring debt includes credit card payments, car payments, child support, etcetera.
Examples:
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, feel free to use our Loan Qualification Calculator.
Just Guidelines
Don't forget these are just guidelines. We will be thrilled to pre-qualify you to help you figure out how much you can afford.
Executive Lending Group, LLC can walk you through the pitfalls of getting a mortgage. Call us at (816) 525-8000.