Ratio of Debt to Income
Your ratio of debt to income is a formula lenders use to calculate how much of your income can be used for a monthly mortgage payment after you meet your other monthly debt payments.
Understanding the qualifying ratio
Most conventional mortgages 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 be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number is what percent of your gross income every month which can be applied to housing costs and recurring debt. Recurring debt includes payments on credit cards, auto payments, child support, etcetera.
Some example data:
With a 28/36 qualifying ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, feel free to use our Loan Qualifying Calculator.
Guidelines Only
Don't forget these are just guidelines. We'd be happy to help you pre-qualify to determine how much you can afford.
At Nationwide Home Loans, we answer questions about qualifying all the time. Call us: 5626935048.