Ratio of Debt-to-Income
Your ratio of debt to income is a tool lenders use to determine how much of your income can be used for a monthly mortgage payment after you meet your various other monthly debt payments.
Understanding the qualifying ratio
For the most part, conventional mortgages 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 percentage of your gross monthly income that can be spent on housing costs (this includes principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).
The second number is what percent of your gross income every month that can be spent on housing costs and recurring debt together. Recurring debt includes auto loans, child support and monthly credit card payments.
Examples:
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-Qualification Calculator.
Guidelines Only
Don't forget these are only guidelines. We'd be happy to go over pre-qualification to help you determine how much you can afford.
Reliance Mortgage Service, Inc can answer questions about these ratios and many others. Give us a call: 562 320-0510.