Debt/Income Ratio
Your debt to income ratio is a formula lenders use to determine how much money can be used for your monthly mortgage payment after all your other recurring debt obligations are fulfilled.
Understanding your qualifying ratio
Most conventional loans need 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 go to housing (this includes mortgage principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA 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 things like auto loans, child support and credit card payments.
Examples:
A 28/36 qualifying ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, we offer a Loan Pre-Qualifying Calculator.
Guidelines Only
Don't forget these are just guidelines. We'd be happy to go over pre-qualification to help you determine how much you can afford.
At U.S.A. Lending, Inc., we answer questions about qualifying all the time. Call us at 305-967-7200.