Ratio of Debt-to-Income
The debt to income ratio is a tool lenders use to determine how much of your income can be used for your monthly mortgage payment after you meet your various other monthly debt payments.
How to figure your qualifying ratio
In general, conventional mortgage loans need a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything that makes up the full payment.
The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt. For purposes of this ratio, debt includes payments on credit cards, vehicle payments, child support, and the like.
Some example data:
- 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 calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Pre-Qualification Calculator.
Don't forget these ratios are just guidelines. We'd be happy to pre-qualify you to help you determine how large a mortgage you can afford.
First Southeast Mortgage Corporation can walk you through the pitfalls of getting a mortgage. Call us: 954.920.9799.