Ratio of Debt to Income
The debt to income ratio is a formula lenders use to determine how much of your income is available for your monthly home loan payment after you have met your other monthly debt payments.
About your qualifying ratio
In general, conventional loans require a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
For these ratios, the first number is how much (by percent) of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything that constitutes the full payment.
The second number is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, vehicle payments, child support, etcetera.
- 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, feel free to use our Mortgage Pre-Qualification Calculator.
Remember these are only guidelines. We'd be happy to pre-qualify you to help you figure out how large a mortgage loan you can afford.
Great Mortgage NMLS#478647 can answer questions about these ratios and many others. Call us at 708.966.9005.