Debt to Income Ratio
Your debt to income ratio is a formula lenders use to calculate how much money is available for a monthly mortgage payment after you have met your other monthly debt payments.
Understanding your qualifying ratio
For the most part, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing costs (this includes loan principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt. Recurring debt includes payments on credit cards, car loans, child support, etcetera.
Some example data:
28/36 (Conventional)
- 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'd like to calculate pre-qualification numbers with your own financial data, use this Mortgage Loan Qualifying Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We will be thrilled to help you pre-qualify to help you figure out how large a mortgage loan you can afford.
At Greystone Loans, Inc., we answer questions about qualifying all the time. Call us at 9094671090.