Your ratio of debt to income is a tool lenders use to determine how much money is available for your monthly home loan payment after you meet your other monthly debt payments.
About your qualifying ratio
Most underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 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, homeowners' dues, Private Mortgage Insurance - everything that makes up the payment.
The second number is what percent of your gross income every month that can be applied to housing expenses and recurring debt. Recurring debt includes payments on credit cards, vehicle loans, child support, etcetera.
Some example data:
- 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'd like to run your own numbers, feel free to use our very useful Mortgage Pre-Qualifying Calculator.
Remember these ratios are only guidelines. We'd be thrilled to help you pre-qualify to help you determine how large a mortgage you can afford.
At The Mortgage Exchange Service LLC, we answer questions about qualifying all the time. Call us at 703.255-5810.