Debt to Income Ratio
Your debt to income ratio is a formula lenders use to calculate how much money can be used for your monthly mortgage payment after all your other monthly debts are met.
Understanding your qualifying ratio
Usually, conventional mortgages require a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be spent on housing costs (including mortgage principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month which can be applied to housing costs and recurring debt together. Recurring debt includes auto/boat payments, child support and credit card payments.
Some example data:
A 28/36 qualifying ratio
- 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 run your own numbers, use this Mortgage Pre-Qualification Calculator.
Just Guidelines
Don't forget these are just guidelines. We'd be thrilled to pre-qualify you to help you determine 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: 5626935048.