Debt to Income Ratio
The debt to income ratio is a formula lenders use to calculate how much money can be used for your monthly mortgage payment after you meet your other monthly debt payments.
Understanding your qualifying ratio
Usually, underwriting for conventional 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.
For these ratios, the first number is the percentage of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.
The second number is the maximum percentage of your gross monthly income that can be applied to housing costs and recurring debt. Recurring debt includes auto/boat loans, child support and credit card payments.
Some example data:
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers on your own income and expenses, we offer a Mortgage Loan Pre-Qualification Calculator.
Don't forget these are only guidelines. We will be happy to help you pre-qualify to help you figure out how much you can afford.
At MidTowne Mortgage, we answer questions about qualifying all the time. Give us a call at (478) 746-2063.