Your debt to income ratio is a tool lenders use to determine how much money is available for a monthly mortgage payment after all your other recurring debts have been fulfilled.
About the qualifying ratio
Usually, underwriting for conventional loans needs a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
In these ratios, the first number is how much (by percent) 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 that can be applied to housing costs and recurring debt. Recurring debt includes things like auto/boat loans, child support and monthly credit card payments.
Some example data:
A 28/36 qualifying 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 want to calculate pre-qualification numbers with your own financial data, we offer a Loan Pre-Qualification Calculator.
Remember these ratios are just guidelines. We will be thrilled to pre-qualify you to help you figure out how large a mortgage loan you can afford.
At Net Equity Financial Mortgage, we answer questions about qualifying all the time. Give us a call: (215)741-3131.