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 a monthly home loan payment after you have met your various other monthly debt payments.
About your qualifying ratio
Usually, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
In these ratios, the first number is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, Private Mortgage Insurance - everything that makes up the payment.
The second number in the ratio is the maximum percentage of your gross monthly income that should be applied to housing expenses and recurring debt. Recurring debt includes payments on credit cards, vehicle loans, child support, etcetera.
Some example data:
With a 28/36 qualifying ratio
- 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 on your own income and expenses, use this Loan Pre-Qualifying Calculator.
Don't forget these are just guidelines. We will be thrilled to go over pre-qualification to help you determine how large a mortgage loan you can afford.
Firelight Mortgage Consultants can walk you through the pitfalls of getting a mortgage. Give us a call at 3032282254.