Debt/Income Ratio
Your ratio of debt to income is a formula lenders use to calculate how much of your income can be used for your monthly home loan payment after you have met your various other monthly debt payments.
About your qualifying ratio
In general, underwriting for conventional mortgages requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing (this includes mortgage principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).
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 credit card payments, auto/boat payments, child support, and the like.
Some example data:
With a 28/36 qualifying 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 run your own numbers, please use this Loan Pre-Qualifying Calculator.
Just Guidelines
Don't forget these are just guidelines. We'd be thrilled to help you pre-qualify to help you figure out how large a mortgage loan you can afford.
Custom Lending Group can walk you through the pitfalls of getting a mortgage. Call us: 7072522700.