Ratio of Debt to Income
The debt to income ratio is a tool lenders use to calculate how much money is available for a monthly mortgage payment after all your other recurring debts have been met.
About your qualifying ratio
In general, conventional loans require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing (this includes loan principal and interest, private mortgage insurance, homeowner's insurance, taxes, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt. Recurring debt includes car loans, child support and monthly credit card payments.
Some example data:
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 with your own financial data, we offer a Loan Qualifying Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We'd be happy to pre-qualify you to help you determine how much you can afford.
The Reen Team at Direct Mortgage Funding can answer questions about these ratios and many others. Call us: 4086261879.