Debt-to-Income Ratio
The ratio of debt to income is a formula lenders use to calculate how much of your income can be used for your monthly mortgage payment after all your other monthly debts are fulfilled.
About your qualifying ratio
In general, underwriting for conventional loans requires a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the payment.
The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt together. Recurring debt includes car loans, child support and credit card payments.
Some example data:
28/36 (Conventional)
- 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 want to run your own numbers, we offer a Mortgage Qualifying Calculator.
Just Guidelines
Remember these ratios are only guidelines. We'd be happy to go over pre-qualification to help you determine how large a mortgage loan you can afford.
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