Debt-to-Income Ratio
The ratio of debt to income is a tool lenders use to calculate how much money can be used for your monthly mortgage payment after all your other monthly debts have been met.
About your qualifying ratio
Typically, conventional mortgages require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be applied to housing costs (including loan principal and interest, private mortgage insurance, hazard insurance, property tax, and HOA dues).
The second number is what percent of your gross income every month which can be applied to housing costs and recurring debt together. Recurring debt includes things like vehicle loans, child support and monthly credit card payments.
Examples:
A 28/36 ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, feel free to use our superb Mortgage Loan Pre-Qualifying Calculator.
Guidelines Only
Remember these ratios are only guidelines. We'd be happy to help you pre-qualify to help you determine how large a mortgage loan you can afford.
At Secure Mortgage Company, we answer questions about qualifying all the time. Give us a call at (713) 667-5472.