Ratio of Debt-to-Income
The debt to income ratio is a formula lenders use to determine how much money can be used for a monthly home loan payment after you have met your various other monthly debt payments.
How to figure the qualifying ratio
In general, underwriting for conventional mortgages requires 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 amount (as a percentage) of your gross monthly income that can go to housing costs (this includes loan 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 car loans, child support and monthly credit card payments.
Examples:
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 Loan Qualification Calculator.
Just Guidelines
Don't forget these are just guidelines. We'd be happy to help you pre-qualify to determine how much you can afford.
Sky Apply Mortgage, Inc can walk you through the pitfalls of getting a mortgage. Call us: 8132007931.