Debt to Income Ratio
Your ratio of debt to income is a formula lenders use to determine how much of your income can be used for a monthly home loan payment after all your other recurring debt obligations are fulfilled.
How to figure your qualifying ratio
Typically, underwriting for conventional loans needs a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing costs (this includes mortgage principal and interest, PMI, 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 expenses and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, auto loans, child support, etcetera.
Examples:
A 28/36 qualifying ratio
- 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 run your own numbers, feel free to use our superb Loan Qualification Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We will be thrilled to help you pre-qualify to determine how large a mortgage you can afford.
Kelly Mortgage Center can walk you through the pitfalls of getting a mortgage. Give us a call: 949-235-3507.