Ratio of Debt to Income
The debt to income ratio is a tool lenders use to calculate how much money can be used for a monthly mortgage payment after you meet your various other monthly debt payments.
How to figure your qualifying ratio
Usually, underwriting for conventional loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (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 spent on housing (this includes mortgage principal and interest, PMI, hazard insurance, property taxes, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt together. Recurring debt includes things like car loans, child support and monthly credit card payments.
Some example data:
With a 28/36 ratio
- 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'd like to calculate pre-qualification numbers with your own financial data, feel free to use our Mortgage Qualifying Calculator.
Don't forget these are just guidelines. We'd be thrilled to pre-qualify you to help you determine how large a mortgage you can afford.
At Executive Lending Group, LLC, we answer questions about qualifying all the time. Give us a call at 8165258000.
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