Ratio of Debt-to-Income
The debt to income ratio is a tool lenders use to calculate how much money is available for a monthly home loan payment after you have met your other monthly debt payments.
Understanding your qualifying ratio
Typically, conventional mortgages require 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 gross monthly income that can be applied to housing costs (this includes loan principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto payments, child support, etcetera.
For example:
A 28/36 qualifying ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers on your own income and expenses, feel free to use our very useful Mortgage Loan Qualification Calculator.
Guidelines Only
Remember these are just guidelines. We will be happy 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 8165258000.