Ratio of Debt to Income
Your debt to income ratio is a tool lenders use to determine how much money can be used for a monthly home loan payment after all your other recurring debt obligations have been met.
Understanding your qualifying ratio
Usually, conventional loans require 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 go to housing (this includes principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month that can be applied to housing expenses and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, auto/boat loans, child support, and the like.
Some example data:
With a 28/36 qualifying ratio
- 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 want to calculate pre-qualification numbers with your own financial data, feel free to use our very useful Mortgage Loan Pre-Qualification Calculator.
Don't forget these ratios are just guidelines. We'd be happy to help you pre-qualify to help you figure out how much you can afford.
At The Mortgage Exchange Service LLC, we answer questions about qualifying all the time. Call us at 703.255-5810.