Debt to Income Ratio
Your ratio of debt to income is a tool lenders use to calculate how much of your income is available for a monthly home loan payment after you meet your various other monthly debt payments.
Understanding the qualifying ratio
Most conventional mortgage 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 spent on housing costs (including mortgage principal and interest, PMI, hazard insurance, taxes, and HOA dues).
The second number 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:
A 28/36 ratio
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to calculate pre-qualification numbers on your own income and expenses, feel free to use our very useful Loan Qualification Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We will be thrilled to help you pre-qualify to determine how much you can afford.
VSI Home Lending can answer questions about these ratios and many others. Give us a call: 2603382561.