Ratio of Debt-to-Income
Your debt to income ratio is a tool lenders use to calculate how much money can be used for your monthly home loan payment after all your other monthly debts have been met.
About your qualifying ratio
For the most part, 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) ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing (this includes mortgage principal and interest, private mortgage insurance, homeowner's insurance, taxes, and HOA dues).
The second number is what percent of your gross income every month that should be applied to housing costs and recurring debt. Recurring debt includes things like auto/boat loans, child support and monthly credit card payments.
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, we offer a Mortgage Qualifying Calculator.
Don't forget these are just guidelines. We'd be thrilled to pre-qualify you to determine how much you can afford.
The Mortgage Exchange Service LLC can walk you through the pitfalls of getting a mortgage. Call us at 703.255-5810.