Debt-to-Income Ratio
The debt to income ratio is a tool lenders use to determine how much money is available for your monthly home loan payment after you meet your various other monthly debt payments.
Understanding your qualifying ratio
Typically, underwriting for conventional mortgages requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
In 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 homeowners' insurance, homeowners' dues, PMI - everything.
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 together. Recurring debt includes car payments, child support and credit card payments.
Examples:
With a 28/36 ratio
- 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 want to calculate pre-qualification numbers on your own income and expenses, please use this Mortgage Qualifying Calculator.
Just Guidelines
Don't forget these are only guidelines. We'd be happy to go over pre-qualification to help you figure out how much you can afford.
At Coastal Mortgage Corp., we answer questions about qualifying all the time. Give us a call at 504-866-5626.