Debt to Income Ratio
The debt to income ratio is a tool lenders use to determine how much money is available for a monthly home loan payment after you have met your other monthly debt payments.
Understanding your qualifying ratio
Usually, underwriting for conventional mortgages 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 gross monthly income that can be applied to housing costs (including principal and interest, PMI, homeowner's insurance, property taxes, and HOA dues).
The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto/boat payments, child support, and the like.
Examples:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers with your own financial data, please use this Mortgage Loan Pre-Qualifying Calculator.
Guidelines Only
Remember these ratios are just guidelines. We will be happy to go over pre-qualification to help you figure out how large a mortgage loan you can afford.
At U.S.A. Lending, Inc., we answer questions about qualifying all the time. Give us a call at 305-967-7200.