Ratio of Debt to Income
Your debt to income ratio is a tool lenders use to determine how much money can be used for your monthly mortgage payment after you meet your other monthly debt payments.
How to figure your qualifying ratio
Most underwriting for conventional mortgages requires 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 in a qualifying ratio is the maximum percentage of your gross monthly income that can be spent on housing (this includes loan principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt together. Recurring debt includes vehicle loans, child support and credit card payments.
For example:
With a 28/36 qualifying ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, please use this Mortgage Loan Pre-Qualifying Calculator.
Guidelines Only
Remember these ratios are only guidelines. We will be thrilled to go over pre-qualification to determine how large a mortgage you can afford.
At PREMIERE MORTGAGE SERVICES, INC., we answer questions about qualifying all the time. Give us a call at 978-422-2311.