Ratio of Debt-to-Income
Your debt to income ratio is a tool lenders use to determine how much of your income can be used for a monthly home loan payment after you meet your various other monthly debt payments.
How to figure the qualifying ratio
Most conventional mortgage loans need 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 go toward housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, PMI - everything.
The second number is the maximum percentage of your gross monthly income that should be spent on housing costs and recurring debt together. For purposes of this ratio, debt includes payments on credit cards, vehicle payments, child support, and the like.
For example:
With a 28/36 qualifying 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 run your own numbers, use this Mortgage Pre-Qualifying Calculator.
Just Guidelines
Remember these are just guidelines. We'd be thrilled to pre-qualify you to determine how large a mortgage you can afford.
VSI Home Lending can answer questions about these ratios and many others. Give us a call at 2603382561.