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 mortgage payment after all your other monthly debts have been met.
Understanding the qualifying ratio
Usually, underwriting for conventional mortgage loans requires 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 amount (as a percentage) of gross monthly income that can go to housing costs (including principal and interest, PMI, hazard insurance, taxes, and homeowners' association dues).
The second number is what percent of your gross income every month which can be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto/boat loans, child support, and the like.
Some example data:
With a 28/36 ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, please use this Loan Qualification Calculator.
Don't forget these are only guidelines. We will be happy to go over pre-qualification to determine how large a mortgage you can afford.
Milestone Mortgage Corp can answer questions about these ratios and many others. Call us at 561-207-8082.