Debt/Income Ratio
The debt to income ratio is a formula lenders use to calculate how much money is available for your monthly mortgage payment after you meet your other monthly debt payments.
How to figure the qualifying ratio
For the most part, underwriting for conventional mortgage loans 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 amount (as a percentage) of your gross monthly income that can be applied to housing (this includes principal and interest, private mortgage insurance, hazard insurance, taxes, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month that should be applied to housing expenses and recurring debt. Recurring debt includes things like vehicle payments, child support and credit card payments.
For example:
With a 28/36 ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, please use this Loan Qualifying Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We will be happy to pre-qualify you to help you determine how much you can afford.
Americn Hero Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call at 754-202-4376.