Debt to Income Ratio
Your debt to income ratio is a formula lenders use to determine how much money is available for a monthly home loan payment after you meet your various other monthly debt payments.
Understanding the qualifying ratio
In general, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
In these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything.
The second number is what percent of your gross income every month that should be applied to housing costs and recurring debt. Recurring debt includes payments on credit cards, car loans, child support, etcetera.
Examples:
With a 28/36 qualifying 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 want to calculate pre-qualification numbers with your own financial data, use this Mortgage Loan 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 much you can afford.
At Americn Hero Mortgage, we answer questions about qualifying all the time. Call us at 754-202-4376.