Debt to Income Ratio
Your debt to income ratio is a tool lenders use to calculate how much of your income is available for a monthly home loan payment after all your other recurring debt obligations are met.
Understanding your qualifying ratio
Usually, conventional 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) qualifying ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing (this includes principal and interest, PMI, hazard insurance, property tax, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt together. Recurring debt includes vehicle loans, child support and monthly credit card payments.
Some example data:
A 28/36 qualifying ratio
- 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 calculate pre-qualification numbers with your own financial data, feel free to use our very useful Mortgage Qualification Calculator.
Remember these ratios are only guidelines. We'd be happy to pre-qualify you to help you determine how large a mortgage you can afford.
AmeriBest Mortgage can walk you through the pitfalls of getting a mortgage. Give us a call: (321) 777-7277.