Ratio of Debt to Income
Your debt to income ratio is a formula lenders use to determine how much of your income is available for a monthly mortgage payment after you meet your various other monthly debt payments.
Understanding your qualifying ratio
Usually, conventional loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything.
The second number is what percent of your gross income every month which can be spent on housing expenses and recurring debt. Recurring debt includes auto loans, child support and monthly credit card payments.
With a 28/36 qualifying 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'd like to run your own numbers, we offer a Loan Pre-Qualification Calculator.
Don't forget these are only guidelines. We'd be happy to pre-qualify you to help you figure out how much you can afford.
At Net Equity Financial Mortgage, we answer questions about qualifying all the time. Give us a call at (215)741-3131.