Debt to Income Ratio
Your ratio of debt to income is a tool lenders use to determine how much money can be used for a monthly mortgage payment after you meet your various other monthly debt payments.
About the qualifying ratio
For the most part, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing (including mortgage 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 payments on credit cards, auto/boat payments, child support, etcetera.
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, use this Loan Qualification Calculator.
Remember these are just guidelines. We'd be thrilled to help you pre-qualify to determine how large a mortgage loan you can afford.
24/7 Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call: 832-407-2668.