Debt-to-Income Ratio
Your debt to income ratio is a tool lenders use to calculate how much money can be used for a monthly mortgage payment after you have met your other monthly debt payments.
About the qualifying ratio
Most conventional mortgages require a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing (including principal and interest, PMI, hazard insurance, property taxes, and HOA 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, auto payments, child support, etcetera.
Examples:
28/36 (Conventional)
- 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 want to run your own numbers, please use this Loan Pre-Qualifying Calculator.
Just Guidelines
Don't forget these ratios are only guidelines. We will be thrilled to help you pre-qualify to determine how large a mortgage loan you can afford.
At AmeriBest Mortgage, we answer questions about qualifying all the time. Give us a call at 3217777277.