Debt-to-Income Ratio
The ratio of debt to income is a formula lenders use to determine how much money is available for your monthly mortgage payment after you have met your various other monthly debt payments.
How to figure the qualifying ratio
Typically, underwriting for conventional mortgages requires 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 amount (as a percentage) of gross monthly income that can be applied to housing (this includes loan principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt together. Recurring debt includes auto/boat loans, child support and credit card payments.
Some example data:
With a 28/36 qualifying ratio
- 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 want to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Loan Pre-Qualification Calculator.
Just Guidelines
Don't forget these are just guidelines. We'd be thrilled to pre-qualify you to help you figure out how large a mortgage loan you can afford.
Southwest Funding #841
Company NMLS # 303440 can walk you through the pitfalls of getting a mortgage. Call us at 5122916100.