Debt to Income Ratio
The debt to income ratio is a formula lenders use to calculate how much of your income can be used for a monthly mortgage payment after all your other recurring debt obligations have been met.
How to figure your qualifying ratio
Usually, conventional mortgage loans require a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can go to housing (this includes principal and interest, private mortgage insurance, homeowner's insurance, property taxes, and HOA dues).
The second number is the maximum percentage of your gross monthly income which can be applied to housing costs and recurring debt together. Recurring debt includes credit card payments, auto/boat loans, child support, etcetera.
A 28/36 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'd like to calculate pre-qualification numbers on your own income and expenses, please use this Mortgage Loan Qualifying Calculator.
Remember these ratios are only guidelines. We'd be thrilled to go over pre-qualification to help you determine how much you can afford.
Citywide Group can answer questions about these ratios and many others. Call us at 949-200-3800