The ratio of debt to income is a formula lenders use to calculate how much of your income can be used for a monthly home loan payment after you meet your other monthly debt payments.
About your 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.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be spent on housing costs (including loan principal and interest, PMI, homeowner's insurance, property tax, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income which can be spent on housing expenses and recurring debt together. For purposes of this ratio, debt includes credit card payments, auto loans, child support, etcetera.
With a 28/36 ratio
- 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 run your own numbers, we offer a Loan Qualification Calculator.
Don't forget these ratios are just guidelines. We will be happy to go over pre-qualification to help you determine how large a mortgage loan you can afford.
At AmeriBest Mortgage, we answer questions about qualifying all the time. Give us a call: (321) 777-7277.