Ratio of Debt-to-Income
Your debt to income ratio is a formula lenders use to determine how much of your income is available for a monthly home loan payment after all your other recurring debts have been met.
How to figure your qualifying ratio
For the most part, conventional loans require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing costs (including principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month which can be applied to housing costs and recurring debt. Recurring debt includes things like auto/boat payments, child support and monthly credit card payments.
Examples:
28/36 (Conventional)
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, please use this Mortgage Qualification Calculator.
Just Guidelines
Remember these are just guidelines. We will be happy to go over pre-qualification to help you figure out how much you can afford.
At VSI Home Lending, we answer questions about qualifying all the time. Give us a call: 2603382561.