Debt to Income Ratio
Your ratio of debt to income is a formula lenders use to determine how much of your income can be used for your monthly mortgage payment after you have met your various other monthly debt payments.
About your qualifying ratio
For the most part, conventional loans need 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 amount (as a percentage) of gross monthly income that can be spent on housing (this includes loan principal and interest, PMI, hazard insurance, property taxes, and homeowners' association dues).
The second number is what percent of your gross income every month which can be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, auto loans, child support, etcetera.
Examples:
28/36 (Conventional)
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, feel free to use our superb Mortgage Loan Qualification Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We will be happy to help you pre-qualify to help you figure out how much you can afford.
Mortgage Headquarters of Missouri, Inc can answer questions about these ratios and many others. Call us at 5733029990.