Debt to Income Ratio
Your debt to income ratio is a tool lenders use to determine how much of your income is available for your monthly mortgage payment after all your other recurring debts have been fulfilled.
How to figure your qualifying ratio
For the most part, underwriting for conventional mortgages needs a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of gross monthly income that can be spent on housing (this includes mortgage principal and interest, private mortgage insurance, homeowner's insurance, property tax, and HOA dues).
The second number in the ratio is what percent of your gross income every month that should be applied to housing expenses and recurring debt. Recurring debt includes vehicle payments, child support and monthly credit card payments.
A 28/36 qualifying ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers on your own income and expenses, use this Mortgage Pre-Qualification Calculator.
Remember these ratios are only guidelines. We'd be happy to help you pre-qualify to help you figure out how much you can afford.
Reliance Mortgage Service, Inc can walk you through the pitfalls of getting a mortgage. Call us: 562 320-0510.