Ratio of Debt to Income
Your debt to income ratio is a tool lenders use to calculate how much of your income is available for your monthly home loan payment after all your other recurring debts have been met.
How to figure the qualifying ratio
For the most part, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
In these ratios, 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 full payment.
The second number in the ratio is what percent of your gross income every month that can be applied to housing expenses and recurring debt together. Recurring debt includes payments on credit cards, car loans, child support, etcetera.
Examples:
A 28/36 ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, we offer a Mortgage Qualification Calculator.
Just Guidelines
Don't forget these are only guidelines. We'd be happy to help you pre-qualify to help you figure out how large a mortgage you can afford.
U.S.A. Lending, Inc. can walk you through the pitfalls of getting a mortgage. Give us a call: 305-967-7200.