The ratio of debt to income is a formula lenders use to determine how much money is available for your monthly home loan payment after all your other recurring debts are fulfilled.
Understanding your qualifying ratio
In general, 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 costs. This ratio is figured on your total payment, including hazard insurance, homeowners' dues, PMI - everything that makes up the payment.
The second number is what percent of your gross income every month that should be applied to housing costs and recurring debt. For purposes of this ratio, debt includes credit card payments, car payments, child support, and the like.
Some example data:
With 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'd like to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Qualifying Calculator.
Don't forget these ratios are just guidelines. We will be thrilled to go over pre-qualification to help you determine how much you can afford.
At First Southeast Mortgage Corporation, we answer questions about qualifying all the time. Call us: 954.920.9799.