Ratio of Debt-to-Income
The debt to income ratio is a tool lenders use to determine how much money is available for a monthly home loan payment after you have met your various other monthly debt payments.
About the qualifying ratio
In general, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing costs (including 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 that should be spent on housing costs and recurring debt together. Recurring debt includes things like auto/boat loans, child support and credit card payments.
A 28/36 qualifying ratio
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Qualifying Calculator.
Don't forget these ratios are only guidelines. We will be thrilled to help you pre-qualify to determine how large a mortgage you can afford.
Advanced Mortgage, Inc. can answer questions about these ratios and many others. Give us a call at (972)991-0080.