Debt to Income Ratio
The ratio of debt to income is a tool lenders use to determine how much money can be used for a monthly mortgage payment after all your other recurring debts are met.
About your qualifying ratio
In general, conventional mortgage loans need 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 be spent on housing (including principal and interest, PMI, homeowner's insurance, taxes, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, vehicle payments, child support, and the like.
Examples:
With 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 run your own numbers, please use this Mortgage Loan Qualification Calculator.
Just Guidelines
Remember these are just guidelines. We'd be thrilled to go over pre-qualification to determine how much you can afford.
At Southwest Funding #841
Company NMLS # 303440, we answer questions about qualifying all the time. Give us a call: 5122916100.