The debt to income ratio is a tool lenders use to calculate how much money is available for a monthly mortgage payment after all your other monthly debt obligations are fulfilled.
Understanding your qualifying ratio
Most underwriting for conventional mortgage loans needs 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 is the percentage of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that constitutes the full payment.
The second number in the ratio is what percent of your gross income every month that should be spent on housing expenses and recurring debt together. Recurring debt includes things like auto/boat payments, child support and monthly credit card payments.
Some example data:
A 28/36 ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, please use this Mortgage Loan Qualification Calculator.
Don't forget these ratios are only guidelines. We'd be thrilled to help you pre-qualify to help you determine how much you can afford.
MidTowne Mortgage can answer questions about these ratios and many others. Call us: (478) 746-2063.