Your ratio of debt to income is a formula lenders use to calculate how much of your income can be used for your monthly home loan payment after you meet your various other monthly debt payments.
How to figure the qualifying ratio
Typically, conventional mortgage loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number is the percentage 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 makes up the full payment.
The second number is what percent of your gross income every month that should be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto loans, child support, and the like.
Some example data:
- 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 want to run your own numbers, we offer a Mortgage Qualification Calculator.
Remember these are just guidelines. We'd be thrilled to help you pre-qualify to help you determine how much you can afford.
At Great Mortgage NMLS#478647, we answer questions about qualifying all the time. Call us: 708.966.9005.