Ratio of Debt to Income
Your debt to income ratio is a formula lenders use to determine how much of your income can be used for a monthly mortgage payment after all your other recurring debt obligations are fulfilled.
About the qualifying ratio
Most conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are a little less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing (including principal and interest, private mortgage insurance, hazard insurance, property tax, and homeowners' association dues).
The second number in the ratio 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, vehicle loans, child support, and the like.
For example:
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 want to calculate pre-qualification numbers with your own financial data, feel free to use our Mortgage Pre-Qualification Calculator.
Guidelines Only
Don't forget these are only guidelines. We will be thrilled to pre-qualify you to determine how much you can afford.
PREMIERE MORTGAGE SERVICES, INC. can walk you through the pitfalls of getting a mortgage. Give us a call at 978-422-2311.