Ratio of Debt-to-Income
The debt to income ratio is a tool lenders use to calculate how much of your income can be used for your monthly mortgage payment after all your other monthly debt obligations are met.
About the qualifying ratio
Typically, conventional loans need a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything.
The second number in the ratio is what percent of your gross income every month that can be applied to housing expenses and recurring debt. Recurring debt includes things like vehicle loans, child support and credit card payments.
Some example data:
- 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, use this Loan Qualification Calculator.
Remember these ratios are only guidelines. We will be happy to pre-qualify you to help you determine how large a mortgage you can afford.
At Peerless Residential Mortgage, we answer questions about qualifying all the time. Give us a call: (513) 713-1515.