The debt to income ratio is a formula lenders use to calculate how much money is available for a monthly mortgage payment after all your other recurring debt obligations have been met.
How to figure your qualifying ratio
Usually, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
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 homeowners' insurance, HOA dues, PMI - everything that constitutes the full payment.
The second number is what percent of your gross income every month which can be applied to housing costs and recurring debt. Recurring debt includes auto payments, child support and monthly credit card payments.
- 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'd like to calculate pre-qualification numbers on your own income and expenses, feel free to use our very useful Mortgage Loan Pre-Qualification Calculator.
Don't forget these are just guidelines. We'd be thrilled to go over pre-qualification to determine how much you can afford.