Debt-to-Income Ratio
Your ratio of debt to income is a tool lenders use to calculate how much of your income can be used for your monthly home loan payment after you have met your other monthly debt payments.
How to figure your qualifying ratio
In general, conventional mortgages need a qualifying ratio of 28/36. FHA loans are less restrictive, 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 taxes, and HOA dues).
The second number in the ratio is what percent of your gross income every month that should be spent on housing expenses and recurring debt together. Recurring debt includes credit card payments, auto loans, child support, and the like.
Some example data:
28/36 (Conventional)
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, we offer a Loan Qualification Calculator.
Just Guidelines
Don't forget these are only guidelines. We will be thrilled to go over pre-qualification to help you figure out how much you can afford.
Nationwide Home Loans can walk you through the pitfalls of getting a mortgage. Call us at 5626935048.