Debt/Income Ratio
The ratio of debt to income is a tool lenders use to determine how much of your income can be used for a monthly home loan payment after you meet your various other monthly debt payments.
About the qualifying ratio
For the most part, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
In these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the full payment.
The second number is the maximum percentage of your gross monthly income that can be spent on housing costs and recurring debt together. Recurring debt includes auto payments, child support and monthly credit card payments.
Some example data:
28/36 (Conventional)
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers with your own financial data, use this Mortgage Pre-Qualification Calculator.
Guidelines Only
Remember these ratios are just guidelines. We will be happy to go over pre-qualification to determine how large a mortgage you can afford.
Southwest Funding #841
Company NMLS # 303440 can answer questions about these ratios and many others. Call us at 5122916100.