Ratio of Debt-to-Income
The debt to income ratio is a tool lenders use to determine how much of your income can be used for your monthly home loan payment after you have met your various other monthly debt payments.
How to figure your qualifying ratio
Most conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are a little less restrictive, 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 principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).
The second number is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt together. Recurring debt includes auto/boat loans, child support and credit card payments.
Some example data:
28/36 (Conventional)
- 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 Mortgage Loan Pre-Qualification Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We'd be thrilled to go over pre-qualification to help you figure out how large a mortgage you can afford.
Americn Hero Mortgage can answer questions about these ratios and many others. Call us: 754-202-4376.