Ratio of Debt to Income
The debt to income ratio is a tool lenders use to calculate how much of your income can be used for your monthly mortgage payment after you have met your other monthly debt payments.
Understanding your qualifying ratio
For the most part, underwriting for conventional mortgage loans requires 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 your gross monthly income that can be applied to housing (including principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing costs and recurring debt together. Recurring debt includes car loans, child support and credit card payments.
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 calculate pre-qualification numbers on your own income and expenses, feel free to use our superb Mortgage Pre-Qualifying Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We will be happy to go over pre-qualification to help you determine how much you can afford.
U.S.A. Lending, Inc. can walk you through the pitfalls of getting a mortgage. Call us at 305-967-7200.