Debt/Income Ratio
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 all your other monthly debt obligations have been met.
How to figure the qualifying ratio
In general, conventional mortgages require 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 is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that constitutes the payment.
The second number in the ratio is what percent of your gross income every month that can be spent on housing expenses and recurring debt. Recurring debt includes credit card payments, vehicle loans, child support, etcetera.
Examples:
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 calculate pre-qualification numbers with your own financial data, feel free to use our superb Mortgage Pre-Qualification Calculator.
Guidelines Only
Don't forget these ratios are just guidelines. We will be thrilled to help you pre-qualify to help you determine how much you can afford.
At Wize Mortgage LLC, we answer questions about qualifying all the time. Give us a call at .