Ratio of Debt to Income
Your debt to income ratio is a formula lenders use to calculate how much money can be used for your monthly home loan payment after you have met your other monthly debt payments.
How to figure your qualifying ratio
In general, underwriting for conventional mortgage loans needs a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 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. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that makes up the payment.
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt. Recurring debt includes auto/boat loans, child support and monthly credit card payments.
Some example data:
A 28/36 ratio
- 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'd like to calculate pre-qualification numbers with your own financial data, feel free to use our superb Loan Qualifying Calculator.
Remember these ratios are only guidelines. We will be happy to go over pre-qualification to help you determine how much you can afford.
VSI Home Lending can answer questions about these ratios and many others. Give us a call: (260) 338-2561.