Ratio of Debt to Income
Your debt to income ratio is a formula lenders use to determine how much money is available for a monthly home loan payment after all your other monthly debts have been fulfilled.
About the qualifying ratio
Typically, underwriting for conventional loans requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
For these ratios, 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 hazard insurance, HOA dues, Private Mortgage Insurance - everything.
The second number in the ratio is the maximum percentage of your gross monthly income that should be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, vehicle loans, child support, etcetera.
Some example data:
- 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'd like to run your own numbers, we offer a Mortgage Loan Pre-Qualifying Calculator.
Don't forget these ratios are just guidelines. We will be happy to go over pre-qualification to help you determine how large a mortgage loan you can afford.
Reliance Mortgage Service, Inc can answer questions about these ratios and many others. Give us a call: 562 320-0510.