The debt to income ratio is a tool lenders use to determine how much money is available for your monthly home loan payment after all your other recurring debts are met.
About the qualifying ratio
For the most part, conventional mortgages require a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing costs (this includes mortgage principal and interest, PMI, hazard insurance, property tax, and HOA dues).
The second number in the ratio is what percent of your gross income every month that can be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, vehicle payments, child support, etcetera.
Some example data:
- 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 want to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Pre-Qualification Calculator.
Remember these ratios are only guidelines. We'd be thrilled to pre-qualify you to help you figure out how much you can afford.
At VSI Home Lending, we answer questions about qualifying all the time. Call us at 2603382561.