Debt/Income Ratio
The debt to income ratio is a formula lenders use to determine how much money is available for your monthly mortgage payment after all your other monthly debts have been fulfilled.
Understanding the qualifying ratio
Most conventional mortgages require a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
For these ratios, the first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything.
The second number is what percent of your gross income every month which can be applied to housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, auto 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 want to run your own numbers, we offer a Mortgage Loan Pre-Qualifying Calculator.
Just Guidelines
Remember these ratios are only guidelines. We'd be thrilled to pre-qualify you to determine how much you can afford.
Hook and Ladder Lending - powered by Sublime Financial, LLC can walk you through the pitfalls of getting a mortgage. Give us a call at 9722920448.