Ratio of Debt to Income
Your debt to income ratio is a tool lenders use to calculate how much money can be used for your monthly home loan payment after you meet your various other monthly debt payments.
Understanding the qualifying ratio
In general, conventional loans require a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can be applied to housing (including mortgage principal and interest, PMI, hazard 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. Recurring debt includes credit card payments, auto/boat loans, child support, and the like.
Some example data:
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, we offer a Loan Qualification Calculator.
Don't forget these ratios are just guidelines. We will be thrilled to go over pre-qualification to help you figure out how large a mortgage loan you can afford.
At My FL Home Loans, Inc., we answer questions about qualifying all the time. Call us at (727) 743-1620.