Debt/Income Ratio
The debt to income ratio is a tool lenders use to calculate how much money is available for a monthly mortgage payment after you meet your various other monthly debt payments.
How to figure the qualifying ratio
In general, conventional mortgage loans require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
In these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything that makes up the payment.
The second number is what percent of your gross income every month which can be applied to housing expenses and recurring debt together. Recurring debt includes auto/boat loans, child support and monthly credit card payments.
For example:
28/36 (Conventional)
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers with your own financial data, use this Mortgage Loan Qualification Calculator.
Just Guidelines
Remember these ratios are just guidelines. We will be happy to go over pre-qualification to determine how large a mortgage loan you can afford.
Greystone Loans, Inc. can answer questions about these ratios and many others. Give us a call: 9094671090.