Debt/Income Ratio
Your debt to income ratio is a tool lenders use to calculate how much of your income can be used for your monthly mortgage payment after all your other monthly debts have been met.
How to figure the qualifying ratio
Most conventional 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 is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything.
The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt. Recurring debt includes payments on credit cards, auto payments, child support, etcetera.
For example:
With a 28/36 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'd like to calculate pre-qualification numbers with your own financial data, please use this Mortgage Qualifying Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We'd be happy to go over pre-qualification to help you figure out how large a mortgage loan you can afford.
Nationwide Home Loans can walk you through the pitfalls of getting a mortgage. Give us a call at 5626935048.