Ratio of Debt to Income
Your debt to income ratio is a tool lenders use to calculate how much of your income can be used for a monthly home loan payment after you meet your various other monthly debt payments.
Understanding the qualifying ratio
Usually, underwriting for conventional mortgages requires a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing (this includes principal and interest, PMI, homeowner's insurance, property tax, and HOA dues).
The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, car payments, child support, etcetera.
For example:
28/36 (Conventional)
- 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, feel free to use our superb Loan Pre-Qualifying Calculator.
Just Guidelines
Don't forget these are only guidelines. We'd be happy to pre-qualify you to help you determine how large a mortgage loan you can afford.
Coastal Mortgage Corp. can walk you through the pitfalls of getting a mortgage. Give us a call: 504-866-5626.