Debt to Income Ratio
Your debt to income ratio is a tool lenders use to calculate how much money is available for a monthly home loan payment after you have met your various other monthly debt payments.
Understanding the qualifying ratio
Usually, underwriting for conventional loans needs 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 spent on housing costs (this includes principal and interest, private mortgage insurance, hazard insurance, taxes, and homeowners' association dues).
The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt. Recurring debt includes payments on credit cards, auto/boat loans, child support, etcetera.
For example:
28/36 (Conventional)
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 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 Mortgage Loan Pre-Qualifying Calculator.
Guidelines Only
Remember these ratios are just guidelines. We'd be thrilled to help you pre-qualify to determine how much you can afford.
Net Equity Financial Mortgage LLC can answer questions about these ratios and many others. Call us at 2157413131.